Jul 222018
 
 July 22, 2018  Posted by at 8:44 am Finance Tagged with: , , , , , , , ,  


Paul Gauguin The Vision after the Sermon (Jacob wrestling with the Angel) 1888

 

Ecuador Will Imminently Withdraw Asylum for Julian Assange (Greenwald)
In Historic First, DOJ Releases Carter Page FISA Application (ZH)
Breannan And The 2016 Spy Scandal (Strassel)
UK To Refuse To Pay Brexit Bill Without Trade Deal (AFP)
Warning On Australia’s Looming Interest-Only Crisis (SMH)
German Industry Groups Warn US On Tariffs Ahead Of EU-US Meeting (R.)
NATO: Doomed To Destruction By Its Own Growth (SCF)
Hundreds of Syrian ‘White Helmets’ Evacuated By Israel to Jordan (R.)
Our Vanishingly Pleasant Land (McCarthy)

 

 

This is physically sickening. Checked front web pages of BBC, Guardian and Independent today: not a word. Hence: another gag order. Yes, there are journalists who don’t like Assange, but it’s not about liking him. It’s about your own freedom to speak. Guess that’s already gone then. I feel sick to my stomach.

Ecuador Will Imminently Withdraw Asylum for Julian Assange (Greenwald)

Ecuador’s president Lenin Moreno traveled to London on Friday for the ostensible purpose of speaking at the 2018 Global Disabilities Summit (Moreno has been using a wheelchair since being shot in a 1998 robbery attempt). The concealed, actual purpose of the President’s trip is to meet with British officials to finalize an agreement under which Ecuador will withdraw its asylum protection of Julian Assange, in place since 2012, eject him from the Ecuadorian Embassy in London, and then hand over the WikiLeaks founder to British authorities. Moreno’s itinerary also notably includes a trip to Madrid, where he will meet with Spanish officials still seething over Assange’s denunciation of human rights abuses perpetrated by Spain’s central government against protesters marching for Catalonia independence.

Almost three months ago, Ecuador blocked Assange from accessing the internet, and Assange has not been able to communicate with the outside world ever since. The primary factor in Ecuador’s decision to silence him was Spanish anger over Assange’s tweets about Catalonia. A source close to the Ecuadorian Foreign Ministry and the President’s office, unauthorized to speak publicly, has confirmed to the Intercept that Moreno is close to finalizing, if he has not already finalized, an agreement to hand over Assange to the UK within the next several weeks. The withdrawal of asylum and physical ejection of Assange could come as early as this week. On Friday, RT reported that Ecuador was preparing to enter into such an agreement.

The consequences of such an agreement depend in part on the concessions Ecuador extracts in exchange for withdrawing Assange’s asylum. But as former Ecuadorian President Rafael Correa told the Intercept in an interview in May, Moreno’s government has returned Ecuador to a highly “subservient” and “submissive” posture toward western governments.

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The only thing left on the menu is nothingburgers.

In Historic First, DOJ Releases Carter Page FISA Application (ZH)

The Department of Justice late Friday released via the FBI’s FOIA Vault a redacted copy of the Carter Page FISA warrant application and several renewals, which accuse Page of being a Russian spy, as summarized by the New York Times – which obtained a copy of the materials through a Freedom of Information Act (FOIA) lawsuit. Of note, in the nearly two years since the application was filed, Page hasn’t been charged with any of the allegations contained within it. The previously top-secret document is the first such release by the DOJ in the 40 years since the surveillance law was enacted. In April, the DOJ said they were “processing for potential redaction and release certain [Foreign Intelligence Surveillance Act] materials related to Carter Page,” after watchdog group Judicial Watch and several other organizations filed similar lawsuits.

The application reads in part: “Identity of the target The target of this application is Carter W. Page, a U.S. person, and an agent of a foreign power, described in detail below.” “The F.B.I. believes Page has been the subject of targeted recruitment by the Russian government,” the warrant application continues. A line was then redacted, and then it picked up with “undermine and influence the outcome of the 2016 U.S. presidential election in violation of U.S. criminal law. Mr. Page is a former foreign policy adviser to a candidate for U.S. president.” -NYT. The document then concludes that Page was allegedly “collaborating and conspiring with the Russian government,” which they viewed as probably cause to spy on him – and again, which Page has never been charged with.

Page – who has repeatedly denied being a Russian spy, said in April that the FISA application was “beyond words,” and a “Joke,” while claiming that he has never served as an agent for a foreign government. We would also note that he hasn’t been charged as one. Page was targeted months earlier by FBI informant Stefan Halper, who formed a relationship with Page and several other Trump aides as part of the Obama administration’s active counterintelligence operation on the Trump campaign. While President Trump has characterized the entire counterintelligence operation as a “witch hunt,” an increasing chorus of frustrated GOP lawmakers have begun to echo his sentiment, as we are now in month 18 of post-inaugural investigation by the Department of Justice.

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When intelligence becomes partisan political, that’s a big problem.

Breannan And The 2016 Spy Scandal (Strassel)

Mr. Comey stands accused of flouting the rules, breaking the chain of command, abusing investigatory powers. Yet it seems far likelier that the FBI’s Trump investigation was a function of arrogance and overconfidence than some partisan plot. No such case can be made for Mr. Brennan. Before his nomination as CIA director, he served as a close Obama adviser. And the record shows he went on to use his position—as head of the most powerful spy agency in the world—to assist Hillary Clinton’s campaign (and keep his job).

Mr. Brennan has taken credit for launching the Trump investigation. At a House Intelligence Committee hearing in May 2017, he explained that he became “aware of intelligence and information about contacts between Russian officials and U.S. persons.” The CIA can’t investigate U.S. citizens, but he made sure that “every information and bit of intelligence” was “shared with the bureau,” meaning the FBI. This information, he said, “served as the basis for the FBI investigation.” My sources suggest Mr. Brennan was overstating his initial role, but either way, by his own testimony, he was an Obama-Clinton partisan was pushing information to the FBI and pressuring it to act.

More notable, Mr. Brennan then took the lead on shaping the narrative that Russia was interfering in the election specifically to help Mr. Trump – which quickly evolved into the Trump-collusion narrative. Team Clinton was eager to make the claim, especially in light of the Democratic National Committee server hack. Numerous reports show Mr. Brennan aggressively pushing the same line internally. Their problem was that as of July 2016 even then-Director of National Intelligence James Clapper didn’t buy it. He publicly refused to say who was responsible for the hack, or ascribe motivation. Mr. Brennan also couldn’t get the FBI to sign on to the view; the bureau continued to believe Russian cyberattacks were aimed at disrupting the U.S. political system generally, not aiding Mr. Trump.

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The UK already agreed to pay it.

UK To Refuse To Pay Brexit Bill Without Trade Deal (AFP)

Britain will only pay its EU divorce bill if the bloc agrees the framework for a future trade deal, the new Brexit Secretary warned in an interview published Sunday. Dominic Raab, who replaced David Davis after he quit the role earlier this month in protest over the government’s Brexit strategy, said “some conditionality between the two” was needed. He added that the Article 50 mechanism used to trigger Britain’s imminent exit from the European Union provided for new deal details. “Article 50 requires, as we negotiate the withdrawal agreement, that there’s a future framework for our new relationship going forward, so the two are linked,” Raab told the Sunday Telegraph.

“You can’t have one side fulfilling its side of the bargain and the other side not, or going slow, or failing to commit on its side. “So I think we do need to make sure that there’s some conditionality between the two.” The British government has sent mixed signals so far on the divorce bill. Prime Minister Theresa May agreed in December to a financial settlement totalling £35 to £39 billion ($46-51 billion, 39-44 billion euros) that ministers said depended on agreeing future trade ties. But cabinet members have since cast doubt on the position. Finance minister Philip Hammond said shortly afterwards he found it “inconceivable” Britain would not pay its bill, which he described as “not a credible scenario”.

The country is set to leave the bloc on March 30, but the two sides want to strike a divorce agreement by late October in order to give parliament enough time to endorse a deal. Raab met the EU’s top negotiator Michel Barnier for the first time on Friday, where he heard doubts over May’s new Brexit blueprint for the future relationship. But Barnier noted the priority in talks should be on finalising the initial divorce deal. A hardline stance by the British government on the financial settlement could complicate progress, with Raab insisting on the link with the bill and a future agreement. “Certainly it needs to go into the arrangements we have at international level with our EU partners,” he told the Telegraph. “We need to make it clear that the two are linked.”

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Australia’s bad, but not the only country with an interest-only problem.

Warning On Australia’s Looming Interest-Only Crisis (SMH)

Australia’s version of the sub-prime crisis that ushered in the global financial crisis could be looming, with a significant number of the 1.5 million households with interest-only loans likely to struggle with higher repayments, experts warn. Martin North, the principal at consultancy Digital Finance Analytics, said interest-only loans account for about $700 billion of the $1.7 trillion in Australian mortgage lending and it was “our version of the GFC”. “My view is we’re in somewhat similar territory to where the US was in 2006 before the GFC,” Mr North said.

Craig Morgan, managing director of Independent Mortgage Planners, said one in five people who took a loan two or three years ago would not qualify for the same loan now, because of the crackdown on lending by the regulator and ongoing fallout from the Royal Commission into financial services. “In the last six months lenders have had this lightbulb moment of what ‘responsible lending’ means,” Mr Morgan said. One of the triggers for the GFC was rising defaults from over-leveraged borrowers who were unable to refinance when their honeymoon rates ended. However, the sub-prime lending in the United States before the GFC included large mortgages being given to people without jobs or on minimum wage.

“This is absolutely not ‘sub-prime’ in the US definition but there were people [in Australia] who were being encouraged to get very big loans on the fact that principal & interest was impossible to service but they could service interest-only,” Mr North said. “We also know that some interest-only loans were not investors but they are actually first-home buyers encouraged to go in at the top of the market.” The Reserve Bank has previously warned $500 billion in interest-only loans are set to expire in the next four years, causing a significant jump in repayments of 30-40 per cent when borrowers are forced to start paying back the principal.

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The car industry may be too complex for simple tariffs.

German Industry Groups Warn US On Tariffs Ahead Of EU-US Meeting (R.)

German industry groups warned on Sunday, ahead of a meeting between European Commission President Jean-Claude Juncker and U.S. President Donald Trump, that tariffs the United States has recently imposed or threatened risk harming the U.S. itself. The U.S. imposed tariffs on EU steel and aluminum on June 1 and Trump is threatening to extend them to EU cars and car parts. Juncker will discuss trade with Trump at a meeting on Wednesday. Dieter Kempf, head of Germany’s BDI industry association, told the Welt am Sonntag newspaper it was wise for the European Union and United States to continue their discussions.

“The tariffs under the guise of national security should be abolished,” Kempf said, adding that Juncker needed to make clear to Trump that the United States would harm itself with tariffs on cars and car parts. He added that the German auto industry employed more than 118,000 people in the United States and 60 percent of what they produced was exported to other countries from the U.S. “Europe should not let itself be blackmailed and should put in a confident appearance in the United States,” he added. EU officials have sought to lower expectations about what Juncker can achieve, and downplayed suggestions that he will arrive in Washington with a novel plan to restore good relations.

Eric Schweitzer, president of the DIHK Chambers of Commerce, told Welt am Sonntag he welcomed Juncker’s attempt to persuade the U.S. government not to impose tariffs on cars. “All arguments in favor of such tariffs are … ultimately far-fetched,” he said.

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Pentagon just delivered $200 million in deadly weapons to Ukraine. Madness.

NATO: Doomed To Destruction By Its Own Growth (SCF)

In the 1960s, Marvel Comics writer Stan Lee and artist/co-plotter Jack Kirby in the United States created a superhero with a novel twist. He was called Giant-Man, and the bigger he got, the weaker he became. Today that character is a prophetic parable about the future of the post- Cold War “super-NATO” that has expanded to include 29 nations compromising more than 880 million people. First it absorbed all the former Warsaw Pact member states in Central Europe. Then it absorbed the three tiny and virulently anti-Russian Baltic states of Lithuania, Latvia. Now NATO is looking to embrace former Soviet Georgia and Ukraine.

As if all this was not enough, some genius at NATO Supreme Headquarters in Brussels came up with the idea of calling the alliance’s June 2016 military exercises in Eastern Europe ANACONDA. An anaconda is a gigantic carnivorous snake in the Amazon rain forest that first encircles its victims, crushes them to death and then devours them. What message was Russia meant to take from such tasteless nomenclature? However, it will not happen. Far from burying Russia, the US-led NATO alliance has been burying itself instead through its reckless, unending and remorseless growth. The curse of Giant Man is upon it. When the comic book hero Giant Man grew to 50 or 60 feet tall, he collapsed under his own weight. Such a fate is already happening to NATO.

The fundamental problem of the NATO alliance is that it is simultaneously too big and too diverse. The bigger it gets, the weaker it gets. This is because, with every state that joins the Alliance, the only militarily significant power within it, the United States, takes on an additional commitment to defend it. What does the United States get in return for its reckless bestowal of such earth shaking commitments? It gets nothing at all. When a tiny nation like Lithuania or Estonia boasts about meeting the 2 percent of GDP defense spending requirement of NATO this is ludicrous. The armed forces and GDP’s of such countries are so small as to be nonexistent. The much larger nations in the Alliance in Western Europe make no pretense of coming remotely close to their two percent defense spending pledge.

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No, not a daring escape, as I read somewhere. Negotiated by Russia.

Hundreds of Syrian ‘White Helmets’ Evacuated By Israel to Jordan (R.)

About 800 members of Syria’s White Helmets civil defense group and their families were evacuated via Israel to Jordan on Sunday from southwest Syria, where a Russian-backed Syrian government offensive is under way, media said. In a statement, the Israeli military said it had completed “a humanitarian effort to rescue members of a Syrian civil organization and their families … due to an immediate threat to their lives”. It said they were transferred to a neighboring country, which it did not identify, and that the evacuation came at the request of the United States and several European countries.

Israeli media identified the Syrians as belonging to the White Helmets organization. Officially called the Syrian Civil Defense but known by their distinctive white helmets, the group has operated a rescue service in rebel-held parts of Syria. Jordan’s official Petra news agency said on its website the kingdom “authorized the United Nations to organize the passage of about 800 Syrian citizens through Jordan for resettlement in Western countries”. The agency identified the Syrians as civil defense workers who fled areas controlled by the Syrian opposition after attacks there by the Syrian army. Petra said they would remain in a closed area in Jordan and that Britain, Germany and Canada had agreed to resettle them within three months.

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Poison to feed ourselves.

Our Vanishingly Pleasant Land (McCarthy)

It’s bizarre: in what seems like a display of obtuseness on a nationwide scale, it is still not generally realised or admitted that across huge swathes of the land, the biodiversity that at the end of the second world war was giving animation and vibrant life to the countryside as it had always done has simply vanished. By the government’s own admission, farmland birds have declined by 56% just since 1970; and the wild flowers have gone, and the butterflies have disappeared in their turn. Farewell to the spotted flycatcher, adios to the corncockle, goodbye to the high brown fritillary: what remains may be green, at least in spring, but that is mainly the pesticide-saturated crops; in wildlife terms, the landscape is now grossly impoverished, beyond any other one in Europe.

In his important new book, Cocker, one of our leading Nature writers, tackles head-on this remarkable twin phenomenon of destruction and ignorance, and he does so on an ambitious scale, seeking to explain and understand it by looking back in detail over a century of growing conservation efforts by individuals, charities, quangos and governments. How have they failed? In particular he is preoccupied with a paradox: how can our Nature have been so devastated, when there are more people who are members of green organisations in Britain than anywhere else? How can it have happened at the very moment in history that saw the rise of a new popular philosophy, environmentalism?

The simple answer is that this moment in history also saw the rise of intensive farming, a juggernaut beyond the power of green groups to control – and indeed beyond the power of individual governments once the Common Agricultural Policy of the European Union was fixed in place. It is modern industrial agriculture, above all by its immense reliance on poisons to boost crop yields, that has wiped out the wildlife of our countryside on a scarcely believable scale.

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Feb 132018
 
 February 13, 2018  Posted by at 10:58 am Finance Tagged with: , , , , , , , , , ,  


Camille Corot Study for “The Destruction of Sodom” 1843

 

We Are Sitting On A “Full Tank Of Gas” (Roberts)
‘Whistleblower’ Alleges VIX Manipulation, Urges Regulatory Probe (R.)
How A 5% Mortgage Rate Would Roil The US Housing Market (CNBC)
Interest-Only Loan Cash Flow Crunch Sparks Fears Of Fire Sales (AFR)
These Bonds Should Make ECB Hawks Apoplectic With Rage (BBG)
China Real Estate Under Pressure (BBG)
Greece Rocked By Claims Drug Giant Novartis Bribed Former Leaders (G.)
Greece Is a Turkey, and the Market’s Going to the Dogs (BBG)
An Englishman’s Home Is an Unreliable Pension Plan (BW)
Charities Face Crackdown On ‘Horrific’ Culture Of Sexual Exploitation (Ind.)
Unicef Admits Failings With Child Victims Of Sex Abuse By Peacekeepers (G.)

 

 

“Individuals just simply refuse to act “rationally” by holding their investments as they watch losses mount.”

We Are Sitting On A “Full Tank Of Gas” (Roberts)

Yea….it’s that psychology thing. Individuals just simply refuse to act “rationally” by holding their investments as they watch losses mount. This behavioral bias of investors is one of the most serious risks arising from ETFs as the concentration of too much capital in too few places.

But this concentration risk in ETF’s is not the first time this has occurred: In the early 70’s it was the “Nifty Fifty” stocks, Then Mexican and Argentine bonds a few years after that; “Portfolio Insurance” was the “thing” in the mid -80’s; Dot.com anything was a great investment in 1999; Real estate has been a boom/bust cycle roughly every other decade, but 2006 was a doozy; Today, it’s ETF’s and Bitcoin.

Risk concentration always seems rational at the beginning, and the initial successes of the trends it creates can be self-reinforcing. Until it goes in the other direction. While the sell-off last week was not particularly unusual, it was the uniformity of the price moves which revealed the fallacy “passive investing” as investors headed for the door all at the same time. Such a uniform sell-off is indicative of what we have been warning about for the last several months. For price chasing investors, last week’s plunge should serve as a warning. “With everyone crowded into the ‘ETF Theater,’ the ‘exit’ problem should be of serious concern. Unfortunately, for most investors, they are likely stuck at the very back of the theater.

I warned of this previously: “At some point, that reversion process will take hold. It is then investor ‘psychology’ will collide with ‘margin debt’ and ETF liquidity. It will be the equivalent of striking a match, lighting a stick of dynamite and throwing it into a tanker full of gasoline. When the ‘herding’ into ETF’s begins to reverse, it will not be a slow and methodical process but rather a stampede with little regard to price, valuation or fundamental measures. Importantly, as prices decline it will trigger margin calls which will induce more indiscriminate selling. The forced redemption cycle will cause catastrophic spreads between the current bid and ask pricing for ETF’s.

As investors are forced to dump positions to meet margin calls, the lack of buyers will form a vacuum causing rapid price declines which leave investors helpless on the sidelines watching years of capital appreciation vanish in moments. Don’t believe me? It happened in 2008 as the ‘Lehman Moment’ left investors helpless watching the crash.” “Over a 3-week span, investors lost 29% of their capital and 44% over the entire 3-month period. This is what happens during a margin liquidation event. It is fast, furious and without remorse.” Make no mistake we are sitting on a “full tank of gas.”

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No! “The flaw allows trading firms with advanced algorithms to move the VIX up or down by simply posting quotes on S&P options..”

‘Whistleblower’ Alleges VIX Manipulation, Urges Regulatory Probe (R.)

A scheme to manipulate Wall Street’s fear gauge, VIX, poses risk to the entire equity market and costs investors hundreds of millions of dollars a month, a law firm on behalf of an “anonymous whistleblower” told U.S. financial regulators and urged them to investigate before additional losses are suffered. The Washington-based law firm which represents an anonymous person who claims to have held senior roles in the investment business, told the Securities and Exchange Commission and Commodity Futures Trading Commission on Monday that he discovered a market manipulation scheme that takes advantage of a widespread flaw in the Chicago Board Options Exchange (CBOE) Volatility Index (VIX).

The CBOE Volatility Index measures the cost of buying options and is the most widely followed barometer of expected near-term stock market volatility. “The flaw allows trading firms with advanced algorithms to move the VIX up or down by simply posting quotes on S&P options and without needing to physically engage in any trading or deploying any capital,” it said in a letter. Those bets against volatility unraveled last week as the benchmark S&P 500 and the Dow Jones Industrial Average suffered their biggest respective percentage drops since August 2011. Investors using exchange-traded products linked to the VIX were pummeled and two banks, Credit Suisse and Nomura, said they would terminate two exchange traded notes that bet on low volatility in stock prices.

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Try 6%, 7%.

How A 5% Mortgage Rate Would Roil The US Housing Market (CNBC)

Mortgage rates are now at their highest level in four years and poised to move even higher. The timing couldn’t be worse, as the usually busy spring housing market kicked into gear early this year amid higher home prices and strong competition for a record low supply of homes for sale. Add it all up, and affordability is starting to hurt. The average rate on the popular 30-year fixed is now right around 4.50%, still low when looking historically, but buyers over the past six years have gotten more used to rates in the 3% range. Mortgage rates have not been at 5% since 2011. A 5% rate would cause more than a quarter of today’s homebuyers to slow their plans, according to a Redfin survey of 4,000 consumers at the end of last year. Just 6% said they would drop their plans to buy altogether.

About one-fifth of consumers said 5% rates would cause them to move with more urgency to purchase a home, fearing rates would rise even further. Another fifth said they would consider more affordable areas or just buy a smaller home. Despite rate concerns, the bigger issue for buyers is changes to tax laws that had lowered the cost of homeownership. Specifically, the deduction on property taxes is now limited to $10,000. While that does not affect homeowners in the majority of the country, it does hit those in high-cost states like New York, New Jersey and Illinois, and those in higher-priced housing markets like California. Some have claimed that higher rates and the new tax law will put downward pressure on home prices, alleviating some of the current sticker shock, but other factors are fighting that assertion.

“Tight credit, lack of inventory and high demand are the major factors that tell us there’s no housing bubble, despite rapid price increases,” said Redfin’s chief economist, Nela Richardson. “There are still many more buyers than the current housing supply can support, with no major relief in sight.”

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From Australia. Check interest-only where you live. Big Threat.

Interest-Only Loan Cash Flow Crunch Sparks Fears Of Fire Sales (AFR)

Interest-only property investors seeking to switch their loan to principal and interest may be forced to sell because of lenders’ tough new serviceability requirements. A typical borrower paying 4.5% on a $400,000 loan will have to prove to their lender they can meet repayments for a 7.25% loan, or an increase in annual repayments from $18,000 to more than $32,700. The higher serviceability rates have been introduced after many investors took out their loans and are forcing borrowers to try and sell their properties, despite markets beginning to soften. It’s worse for many self-managed super fund investors who bought investment properties and are boxed in from making bigger payments because of annual caps on the size of their contributions. Real estate agents are warning the cash flow crunch is causing mortgage stress to rapidly spread from one-time mining boom towns and the outer suburbs into prestigious inner suburbs.

“Clients are ringing to say they need to refinance and their next call is that they need to sell,” said Andrew Fawell, director of Beller Property Group. Mr Fawell, whose business covers inner Melbourne within 10 kilometres of the central business district, has been asked to value four potential mortgagee property sales in the past month after having none in the past two years. “Many investors who bought two or three apartments with, in many cases, only 10% deposit with cheap interest-only loans are beginning to feel the heat,” Mr Fawell said. “These numbers will get a lot worse as investors find it harder to service their debt.”

The potential problem arises for many three- to five-year fixed rate loans that have reached the end of their terms and the much stricter regime introduced by the Australian Prudential Regulation Authority. Many borrowers deposited only 10%. In recent years most major lenders have introduced a 7.25% “floor for serviceability” for investor and owner-occupier loans, which is the minimum rate at which the bank will assess a home loan. Serviceability is the lenders’ assessment of the borrowers’ capacity to afford the loan and takes into account possibly higher future interest rates. It is usually assessed by a review of income and fixed commitments over the life of the loan and potential rental income.

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The ECB supports those parties that don’t need it.

These Bonds Should Make ECB Hawks Apoplectic With Rage (BBG)

This is tapering? With the economic recovery well under way in Europe the European Central Bank has cut its government bond purchases by two-thirds. Fair enough. However, it is not reining in its involvement in company debt. The securities now comprise about 20% of monthly purchases, up from 7% at the start of the program in mid-2016. The total amount could top €200 billion ($244 billion) before quantitative easing ends. If it had any self-knowledge the ECB should be aware of the problems it’s creating. The fact that, by its purchases, it has soaked up all the liquidity in the secondary market and has had to turn to the primary market should be a warning sign. The central bank’s growing involvement in company borrowing should be causing ructions among the hawks on the Governing Council, who seem alive to the dangers of being late in withdrawing stimulus.

Yet their silence is deafening. Through QE the ECB has invested in over 230 individual companies, and with an average maturity of 5.6 years it’s impossible to see them as being exposed only in the short term. Performance has been decent – spreads have tightened on about three-quarters of its holdings. The odd misstep, such as having to liquidate Steinhoff or German fertilizer maker K+S bonds when they fell below investment grade, can be overlooked. The knock-on effect of such largess is that corporate bond spreads have had a seemingly unending streak of achieving record lows. Support for credit markets in times of strife is one thing. But driving outsized performance isn’t just storing up trouble for an individual company or investor for the future, it’s a reckless refusal to allow financial discipline to inform the decision making of actors in the financial system.

[..] The surge of demand for additional tier one bank capital is another particularly worrying phenomenon. Investors face a total loss if the issuing bank’s capital ratios fall below regulatory requirements. Raiffeisen Bank was able in January to issue an AT1 perpetual bond at 4.5%, having issued a similar 6.125% AT1 security in June. Though there was a one-notch credit-rating upgrade, that can hardly justify such an enormous improvement. And 4.5% can never be enough compensation for the risk of getting completely wiped out.

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Now Beijing wants to push rental housing. Easier to control?

China Real Estate Under Pressure (BBG)

While all eyes are on China’s stocks rout after the U.S. swoon, there’s a troubled sector that’s garnering fewer headlines but will have broader reverberations – real estate. Chinese property stocks slumped last week, dragged down not just by the global sell-off but by worries this may be the year when housing finally takes a hit. To date, Beijing’s crackdown on risk amid soaring household debt has had little effect on prices. December data showed values in small cities continued to rise, while they were mostly flat in top-tier conurbations like Guangzhou, Shenzhen and Beijing. There are several reasons, though, why the 13-year rally in house prices must end at some point. First, banks are making borrowing tough, not only raising costs for home loans but also restricting supply, especially in major centers such as Beijing and Shenzhen, under a semi-official mortgage quota.

Even last year’s stars, the second- and third-tier cities that led price gains, may fade as China curtails easy home loans that were intended to help soak up a glut of property. Downpayments there ranged between 20 and 30%, compared with 40 to 80% in top-tier locations, according to Credit Suisse. As the curbs bite, mortgage lending has started to decline. (The other plank of household debt, consumer lending, has been an even bigger problem, surging 180% last year, according to Credit Suisse.) Second, perhaps further down the line, a property tax is looming. Finance Minister Xiao Jie indicated this might happen as early as 2020. When President Xi Jinping exhorted people to remember that houses are for living, not speculation, real estate investors must have grown nervous; a tax will make them quake.

With few investment options available to individuals beyond the volatile stock market and wealth-management products (more and more of which are being banned), it’s no surprise that as much as 25% of the demand for real estate is speculative, according to Bloomberg Economics. Third, there’s the more immediate threat to real estate prices of a supply-side push by Beijing. The government is starting to shift from tamping down demand to promoting new housing. Among measures the government is promoting, according to BNP Paribas economist Chen Xingdong, is encouraging homes where the government and buyers share property rights, and even allowing state-owned firms to sell apartments to their employees. The government is also encouraging the growth of a rental market. While much of the current stock of rental housing is of poor quality, that’s likely to change.

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And only now does this reach European media. The upshot: Novartis pulled the same stunt in South Korea.

Greece Rocked By Claims Drug Giant Novartis Bribed Former Leaders (G.)

The Greek prime minister, Alexis Tsipras, has called for parliament to investigate whether two of his predecessors and eight former ministers accepted bribes from the Swiss drugmaker Novartis, after allegations of industrial-scale bribery involving senior politicians. The former PMs Antonis Samaras and Panagiotis Pikrammenos, the governor of the Bank of Greece and the EU’s migration commissioner were all identified as alleged beneficiaries of bribes in a report compiled by anti-corruption prosecutors with the help of US authorities. Novartis is alleged to have bribed politicians to approve overpriced contracts and to have made payments to thousands of doctors as part of concerted efforts to boost sales between 2006 to 2015.

The claims have rocked Greek society since coming to light last week. One serving government minister claimed the kickbacks surpassed €50m and resulted in costs of more than €4bn to the Greek public health system. The deputy justice minister, Dimitris Papangelopoulos, said it was “the biggest scandal since the establishment of the Greek state” almost 200 years ago. Widening the net on Monday, Tsipras said it was imperative there could be no cover-up. “We will make use of every power afforded by national and international law to recover the money stolen from the Greek people down to the last euro,” the leftist leader told MPs in his Syriza party. “We will do everything we can to reveal the truth.”

MPs will vote on establishing a committee of inquiry later this month. Only parliament has the power to investigate politicians for alleged infractions during their term in office. The allegations have been rebutted vehemently by the accused. The report’s reliance on three unnamed witnesses – who are currently under government protection – has been especially criticised, and legal experts contend that the claims would not stand up in court. The EU commissioner Dimitris Avramopoulos demanded that the identity of the witnesses be revealed and expressed his “disgust” at what he said were fabrications created by “sick minds”. He stands accused of purchasing 16m anti-flu vaccines from Novartis while health minister between 2006 and 2009. [..] Novartis has faced similar investigations in recent years. Last year South Korea fined the company $48m for offering kickbacks to doctors.

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Just as Greece starts selling bonds again, it faces increasing competition,

Greece Is a Turkey, and the Market’s Going to the Dogs (BBG)

Greece almost makes it look easy. It issued a new €3 billion ($3.7 billion) seven-year bond on Thursday, at a very healthy 3.5% yield, stepping into a briefly open window for raising money during the most torrid week for markets in years. The security is now trading very close to 4%. Ouch. The benefits of going ahead with the sale went to Greece rather than to investors. With a €6 billion order book there was no lack of demand – but there is buyer’s remorse now. It’s the first sovereign syndicated new issue to perform badly in Europe so far this year. This could make it troublesome for the region’s other governments to bring deals on top of an already-heavy regular auction schedule. Greece may just be one turkey, but investor demand is going to become a lot pickier.

And there’s plenty to choose from. Governments have been crowding out the syndicated new issue market even more this year, comprising 26.5% of deals versus an already-strong 23% at this stage in 2017. If supra-nationals and agencies are included then half of all new syndicated deals are from an official institution. It’s a curious result, given that the European new-issue market is supposed to be much more about companies. For example, the European Financial Stability Facility – created to fund Greece’s bailout – has already issued half of its €28 billion annual plan. The EFSF has come three times in 2018 with €13.5 billion in maturities ranging from 6 to 23 years. That is an almost indecent rush to complete its annual funding schedule as early as possible. It’s smart for the issuer – less so for the investor.

Borrowers can try to front-load sales in a low-rate environment, but with more central banks getting comfortable with tightening, investors are not going to play that game unless the yield is generous. It’s an increasing struggle, given that the German benchmark 10-year yield has risen sharply since the mid-December lows of 30 basis points. The yield famine is easing up.

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What a shame: too late!

An Englishman’s Home Is an Unreliable Pension Plan (BW)

“A man’s house is his castle,” Sir Edward Coke wrote back in the 17th century. These days, Britons are relying on their properties not just for refuge but also to fund their retirements. It’s a strategy that could backfire badly. Along with the rest of the world, the U.K. has an aging population: a growing number of retirees are being supported by a shrinking pool of workers. The U.K.’s dependency ratio – calculated by adding together the over 65s and under 15s, then dividing by the working-age population and multiplying by 100 – will rise to 60% by 2027. That’s up from 55% in 2017 and from 54% in 1997. As the pyramid grows more inverted, how does the top-heavy non-working cohort propose to finance a life of leisure and superannuation? By releasing the equity they expect to have accumulated in their homes once they’re ready to hit the golf course.

One in five Brits agreed with the statement “when I retire, I plan to sell my house, downsize and live off the profit,” according to a survey commissioned by pension consultants LCP from polling firm YouGov. That gamble seems unwise. In recent years home values, like global stock markets, only ever seemed to increase. But, again as with global stock markets, the notion of ever-rising prices has taken something of a beating recently. According to a report published on Monday, U.K. house prices posted their first annual decline in six years in January. Moreover, with wage growth in recent years failing to keep pace with either rising property prices or inflation, it’s become harder for those of working age to get on the housing ladder in the first place. And the percentage of under 34s who own their own homes has slumped in the past decade.

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This is so sick it makes one silent.

Charities Face Crackdown On ‘Horrific’ Culture Of Sexual Exploitation (Ind.)

British charities are facing a government crackdown to combat the “horrific” sexual exploitation exposed at Oxfam, amid concerns about a wider culture of abuse. All British charities working overseas have been ordered to provide “absolute assurances” that they are protecting vulnerable people and referring complaints to authorities. Oxfam’s deputy chief executive resigned during crisis talks with the Government, saying she took “full responsibility” for the alleged use of prostitutes by senior staff in Haiti. But aid workers told The Independent sexual misconduct against both locals and staff remains “widespread” in humanitarian agencies and called for wholesale reforms.

Penny Mordaunt, the International Development Secretary, has written a letter to all UK charities working overseas demanding “absolute assurance that the moral leadership, the systems, the culture and the transparency needed to fully protect vulnerable people are in place”. “It is not only Oxfam that must improve,” she said. “My absolute priority is to keep the world’s poorest and most vulnerable people safe from harm. In the 21st century, it is utterly despicable that sexual exploitation and abuse continues to exist in the aid sector.” The Department for International Development (Dfid) has created a new unit dedicated to reviewing safeguarding in the aid sector and stopping “criminal and predatory individuals” being employed by other charities.

[..] “Oxfam made a full and unqualified apology – to me, and to the people of Britain and Haiti – for the appalling behaviour of some of their staff in Haiti in 2011, and for the wider failings of their organisation’s response to it,” said Ms Mordaunt. “They spoke of the deep sense of disgrace and shame that they and their organisation feel about what has happened, and set out the actions they will now take to put things right and prevent such horrific abuses happening in future.“

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It’s not just Oxfam, it’s an industry-wide culture.

Unicef Admits Failings With Child Victims Of Sex Abuse By Peacekeepers (G.)

The UN’s children’s agency has admitted shortcomings in its humanitarian support to children who allege that they were raped and sexually abused by French peacekeepers in Central African Republic. A statement by Unicef Netherlands is the first public acknowledgement of the agency’s recent failure to provide support to some of the victims of alleged abuse by peacekeepers in the African nation. It comes as the aid sector and the UN face increasing scrutiny for their failings in managing internal sexual misconduct by their own staff. Unicef was given the task of overseeing the support for children who said they had been abused by peacekeepers.

But in March last year, an award-winning investigation by Swedish Television’s Uppdrag Granskning (Mission Investigate) revealed that some of the children supposedly in the UN’s care were homeless, out of school and forced to make a living on the streets, despite UN assurances that they would be protected. Unicef’s representative in CAR told the programme that the children were in the agency’s assistance programme for minors and were being supported. He said he was not aware that some were on the streets. But earlier this month – ahead of a Dutch screening of the programme – Unicef Netherlands admitted to the Dutch television programme Zembla that Unicef had failed in its duty to help some of the alleged victims. But it said that since the programme had first aired, it had taken steps to locate the children featured in the programme and provide them with support.

Marieke van Santen, of Zembla, said she found the Swedish film “astonishing” because the children who were interviewed were known to Unicef, yet they were not being cared for. Van Santen said: “It is quite shocking to realise that not only once but twice UN agencies have failed to help these victims.” The statement from Unicef Netherlands was welcomed by Karin Mattisson, a reporter for Mission Investigate. “I hope it makes a difference to the children and gives them strength. They have said they were failed,” said Mattisson.Several boys who testified to having been sexually assaulted by French soldiers were living rough, Mattisson found, while a girl, who became pregnant at the age of 14 by a Congolese peacekeeper and had later found out she was HIV-positive, was out of school looking after her baby. Another boy, aged eight, who was too traumatised to be interviewed, was in an orphanage. “I hope they live up to this statement,” she said. “When we investigated the UN and Unicef it was a long journey into their culture of silence.”

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Jan 312018
 
 January 31, 2018  Posted by at 10:58 am Finance Tagged with: , , , , , , , , , , ,  


Paul Gauguin Farm in Brittany 1894

 

Market Euphoria May Turn to Despair If 10-Year Yield Jumps to 3% (BBG)
Forget Stocks, Look At EU Bonds – They Are The Real Problem (Luongo)
The Ticking Time Bomb in the Municipal-Bond Market (Barron’s)
UK Interest-Only Mortgagees Are at Risk of Losing Their Homes
US National Debt Will Jump by $617 Billion in 5 Months (WS)
Trump Urges Congress To Pass $1.5 Trillion In Infrastructure Spending (R.)
Trump Joins Bezos, Dimon, Buffett In Pledge To Stop Soaring Drug Prices (MW)
Trump Says ‘100%’ After He’s Asked to Release GOP Memo (BBG)
Saving Rate Drops to 12-Year Low As 50% of Americans Don’t Have Savings (WS)
U.S. Regulators Subpoena Crypto Exchange Bitfinex, Tether (BBG)
Customer Lawsuits Pummel Spanish Banks (DQ)
Britons Ever More Deeply Divided Over Brexit (R.)
The GDP of Bridges to Nowhere (Michael Pettis)

 

 

If central banks and governments have really lost control over bonds, find shelter.

Market Euphoria May Turn to Despair If 10-Year Yield Jumps to 3% (BBG)

It’s getting harder and harder to quarantine the selloff in Treasuries from equities and corporate bonds. The benchmark 10-year U.S. yield cracked 2.7% on Monday, rising to a point many forecasters weren’t expecting until the final months of 2018. For over a year, range-bound Treasuries helped keep financial markets in a Goldilocks state, with interest rates slowly rising due to favorable forces like stronger global growth and the Federal Reserve spearheading a gradual move away from crisis-era monetary policy. Yet the start of 2018 caught many investors off guard, with the 10-year yield on pace for its steepest monthly increase since November 2016. It’s risen 30 basis points this year and reached as high as 2.73% in Asian trading Tuesday.

Suddenly, they’re confronted with thinking about what yield level could end the good times seen since the presidential election. For many, 3% is the breaking point at which corporate financing costs would get too expensive, the equity market would lose its luster and growth momentum would fade. “We are at a turning point in the psyche of markets,” said Marty Mitchell, a former head government bond trader at Stifel Nicolaus & Co. and now an independent strategist. “A lot of people point to 3% on the 10-year as the critical level for stocks,” he said, noting that higher rates signal traders are realizing that quantitative easing policies really are on the way out.

U.S. stocks have set record after record, buoyed by strong corporate earnings, President Donald Trump’s tax cuts and easy U.S. financial conditions. The S&P 500 Index has returned around 6.8% this year, once reinvested dividends are taken into account, and the U.S. equity benchmark is already higher than the level at which a Wall Street strategists’ survey last month predicted it would end 2018. What often goes unsaid in explaining the equity-market exuberance is that Treasury yields refused to break higher last year. Instead, they remained in the tightest range in a half-century, allowing companies to borrow cheaply and forcing investors to seek out riskier assets to meet return objectives.

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It’s all bonds, not even just sovereign bonds. Investors will move from equities into bonds all over the place.

Forget Stocks, Look At EU Bonds – They Are The Real Problem (Luongo)

While all the headlines are agog with stories about the Dow Jones dropping a couple hundreds points off an all-time high, German bunds are getting killed right before our eyes. The Dow is simply a market overdue for a meaningful correction in a primary bull market. And it’s a primary bull market brought on by a slow-moving sovereign debt crisis that will engulf Europe. It’s not the end of the story. Hell, the Dow isn’t even a major character in the story. In fact, similar stories are being written in French 10 year debt, Dutch 10 year debt, and Swiss 10 year debt. These are the safe-havens in the European sovereign debt markets. Meanwhile, Italian 10 year debt? Still range-bound. Portuguese 10 year debt? Near all-time high prices. The same this is there with Spain’s debt. All volatility stamped out. Why? Simple. The ECB.

The ECB’s quantitative easing program and negative interest rate policy (NIRP) drove bond yields across the board profoundly negative for more than a year. [..] the ECB is trapped and cannot allow rates to rise in the vulnerable sovereign debt markets — Italy, Portugal, Spain — lest they face bank failures and a real crisis. The problem with that is, the market is scared and so they are selling the stuff the ECB isn’t buying – German, French, Dutch, Swiss debt. In simple terms, we are seeing the flight into the euro intensify here as investors are raising cash. The euro and gold are up. The USDX continues to be weak even though capital is pouring into the U.S. thanks to fundamental changes to tax and regulatory policy under President Trump. In the short term Dow Jones and S&P500 prices are overbought. Fine. Whatever. But, the real problem is not that. The real problem is the growing realization in the market that governments and central banks do not have an answer to the debt problem.

[..] The U.S. economy is about to be unleashed by Trump’s tax cut law. It will be able to absorb higher interest rates for a while. Yield-starved pension funds, as Armstrong rightly points out, will be bailed out slightly forestalling their day of reckoning. And in doing so, higher rates in the U.S. are driving core-rates higher in Europe. An overly-strong euro is crushing any hope of further economic recovery in the periphery, like Italy. The debt load on Italy et.al. has increased relative to their national output by around 20% since the end of 2016. This will put the ECB at risk of a massive loss of confidence when Italian banks start failing, Italy’s budget deficit starts expanding again and hard-line euroskeptics win the election in March. As capital is drained out of Europe into U.S. equities, the dollar, gold and cryptocurrencies, things should begin to spiral upwards rapidly.

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See? More bonds. Meredith Whitney was 10 years early.

The Ticking Time Bomb in the Municipal-Bond Market (Barron’s)

There’s a looming disaster in the market for municipal debt. Every market participant knows about it, and there isn’t much any of them can do about it. Many state and local governments, even more than corporations, have promised generous pensions they can’t afford. The promises may have looked plausible in the past, especially during the dot-com boom, when money that pension funds put in the markets was doubling. When the market crashed, so did their returns—and, a few years later, the global financial crisis took out another substantial chunk. And with interest rates at historic lows, bonds have failed to deliver the income the funds relied on. While governments delay dealing with the problem as long as they can, analysts and researchers are wondering if we have reached the point of no return. For investors in municipal bonds, it could mean future defaults and losses.

“We are increasingly wary of high pension exposure, especially among state and local credits,” the Barclays muni-research team wrote this month, citing “inflated return targets, low funded ratios, growing obligations, perhaps heavy allocations to equities and compressed tax revenues make for especially adverse conditions.” What’s more, “short-term investment gains won’t be sufficient to plug liability gaps.” Yet many pensions still assume they will be able to generate the returns they saw in the past. New Jersey’s pension and the California Public Employees’ Retirement System have lowered their assumed rate of return to 7%. But with the 30-year Treasury yielding less than 3% and stocks already at record highs, it’s unclear how public markets can generate 7%—which is why many pensions have turned to higher-risk, lower-liquidity strategies, such as private equity.

Muni investors, for their part, are increasingly sensitive to pensions’ widening gap. After the financial crisis and the ensuing recession, they suddenly became interested in pension finances. A report late last year by the Center for Retirement Research at Boston College found that, as pension liabilities grew, spreads between state and local municipal bonds and Treasuries also increased. When such issuers came to issue new debt, they discovered the market was charging them more to borrow. “Pensions have become increasingly relevant to the municipal bond markets and can have a meaningful impact on the borrowing costs of a municipality,” the report says.

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Rising bond yields mean higher mortgage rates. Australia is overflowing with interest only loans. Plenty other countries have loads of it too.

UK Interest-Only Mortgagees Are at Risk of Losing Their Homes

Some borrowers with interest-only mortgages may lose their homes as a result of shortfalls in repayment plans, the U.K.’s Financial Conduct Authority warned. The FCA has identified three peaks in interest-only mortgage repayments, the first of which is currently underway. Defaults are less likely in the present wave of maturities because the homeowners are approaching retirement and have higher incomes. The next two peaks, from 2027 through 2028 and in 2032, are more at risk of shortfalls, the regulator said. Customers are reluctant to discuss with their lenders how they’ll pay off the loans, limiting their options, the FCA found. Almost 18% of outstanding mortgages in the U.K. are interest-only or involve only partial payment of the capital, according to the statement.

“Since 2013, good progress has been made in reducing the number of people with interest-only mortgages,” Jonathan Davidson, executive director of supervision retail and authorization at the regulator, said in a statement. “However, we are very concerned that a significant number of interest-only customers may not be able to repay the capital at the end of the mortgage and be at risk of losing their homes.” The FCA reviewed 10 lenders representing about 60% of the interest-only mortgage market for the study. The supervisor also urged lenders to review and improve their own strategies regarding repayment of the loans.

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Now add some infrastructure.

US National Debt Will Jump by $617 Billion in 5 Months (WS)

While everyone is trying to figure out how to twist the new tax cut to their advantage and save some money, the US Treasury Department just announced how much net new debt it will have to sell to the public through the second quarter to keep the government afloat: $617 billion. That’s what the Treasury Department estimates will be the total amount added to publicly traded Treasury securities — or “net privately-held marketable borrowing” — through the end of the second quarter. This will be the net increase in the US debt through the end of Q2. By quarter: During Q1, the Treasury expects to increase US public debt by $441 billion. It includes estimates for “lower net cash flows.” During Q2 – peak tax seasons when revenues pour into the Treasury – it expects to increase US public debt by $176 billion.

It also “assumes” that with these increases in the debt, it will have a cash balance at the end of June of $360 billion. So over the next five months, if all goes according to plan, the US gross national debt of $24.5 trillion currently – which includes $14.8 trillion in publicly traded Treasury securities and $5.7 trillion in internally held debt – will surge to about $25.1 trillion. That’s a 4% jump in just five months. Note the technical jargon-laced description for this (marked in green on the chart). The flat lines in 2013, 2015, and 2017 are a result of the prior three debt-ceiling fights. Each was followed by an enormous spike when the debt ceiling was lifted or suspended, and when the “extraordinary measures” with which the Treasury keeps the government afloat were reversed. And note the current debt ceiling, the flat line that started in mid-December.

In November, Fitch Ratings said optimistically that, “under a realistic scenario of tax cuts and macro conditions,” the US gross national debt would balloon to 120% of GDP by 2027. The way things are going right now, we won’t have to wait that long. Back in 2012, gross national debt amounted to 95% of GDP. Before the Financial Crisis, it was at 63% of GDP. At the end of 2017, gross national debt was 106% of GDP! Over the next six month, the debt will grow by about 4%. Unless a miracle happens very quickly, the debt will likely grow faster over the next five years due to the tax cuts than over the past five years. But over the past five years, the gross national debt already surged nearly 25%, or by $4.1 trillion. So that’s a lot of borrowing, for an economy that is growing at a decent clip.

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Coverage of SOTU proves my point: Moses split the nation.

As for infrastructure, they will go for what provides most short term gain. That is, make people pay. For roads, not public transport, for instance.

Trump Urges Congress To Pass $1.5 Trillion In Infrastructure Spending (R.)

President Donald Trump called on the U.S. Congress on Tuesday to pass legislation to stimulate at least $1.5 trillion in new infrastructure spending. In his State of the Union speech to Congress, Trump offered no other details of the spending plan, such as how much federal money would go into it, but said it was time to address America’s “crumbling infrastructure.” Rather than increase federal spending massively, Trump said: “Every federal dollar should be leveraged by partnering with state and local governments and, where appropriate, tapping into private-sector investment.” The administration has already released an outline of a plan that would make it easier for states to build tollways and to privatize rest stops along interstate highways.

McKinsey & Company researchers say that $150 billion a year will be required between now and 2030, or about $1.8 trillion in total, to fix all the country’s infrastructure needs. The American Society of Civil Engineers, a lobbying group with an interest in infrastructure spending, puts it at $2 trillion over 10 years. Trump said any infrastructure bill needed to cut the regulation and approval process that he said delayed the building of bridges, highways and other infrastructure. He wants the approval process reduced to two years, “and perhaps even one.” Cutting regulation is a top priority of business lobbying groups with a stake in building projects and the U.S. Chamber of Commerce.

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Just the kind of folk you want in charge of your health. With your medical needs standing in the way of their profits.

Trump Joins Bezos, Dimon, Buffett In Pledge To Stop Soaring Drug Prices (MW)

President Trump pledged to bring down drug prices. “One of my greatest priorities is to reduce the price of prescription drugs,” Trump said during his State of the Union address on Tuesday evening. “In many other countries, these drugs cost far less than what we pay in the United States and it’s over, very unfair. That is why I have directed my administration to make fixing the injustice of high drug prices one of our top priorities for the year.” Mark Hamrick, Washington, D.C. bureau chief at Bankrate.com, said the president has made that promise before. “Will his choice of a former drug industry executive, Alex Azar, now the head of Health and Human Services, deliver results on that front?” he said. “I’d prefer to place my bet on the partnership just announced by Berkshire Hathaway, J.P. Morgan Chase and Amazon.”

Earlier Tuesday, Amazon, Berkshire Hathaway and JP Morgan Chase, three of the biggest companies in the U.S., surprised the health-care industry on Tuesday with a plan to form a company to address rising health costs for their U.S. employees. They said it will be “free from profit-making incentives and constraints.” Health-care costs have skyrocketed over the last 60 years, according to the Kaiser Family Foundation, a nonprofit, private foundation based in Washington, D.C. In 1960, hospital costs cost $9 billion. In 2016, they cost $1.1 trillion. In 1960, physicians and clinics costs were $2.7 billion, but ballooned to $665 billion. Prescription drug prices soared from $2.7 billion in 1960 to $329 billion. U.S. health-care spending reached $3.3 trillion, or $10,348 per person in 2016.

The Trump administration has pledged to roll back the 2010 Affordable Care Act, perhaps Barack Obama’s signature achievement as U.S. president. Roughly 1 million people will lose their insurance under Trump’s plans, according to the Congressional Budget Office. Berkshire Hathaway chairman and CEO Warren Buffett didn’t hold back in excoriating the health-care industry. “The ballooning costs of health care act as a hungry tapeworm on the American economy,” Buffett said. Amazon founder CEO Jeff Bezos and J.P. Morgan Chase chairman and CEO Jamie Dimon were more measured in their remarks. “Amazon, Chase and Berkshire Hathaway think they can do it better than the insurance companies,” said Jamie Court, president of Consumer Watchdog. “There’s a lot of frustration with the high cost of health insurance, yet government’s offering almost no systemic solutions. It’s as big a change as I have seen in the market in years.”

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Just do it?! Perhaps it makes sense not to release it before SOTU, it would have been the only talking point.

Trump Says ‘100%’ After He’s Asked to Release GOP Memo (BBG)

President Donald Trump was overheard Tuesday night telling a Republican lawmaker that he was “100%” planning to release a controversial, classified GOP memo alleging bias at the FBI and Justice Department. As he departed the House floor after delivering his State of the Union address, C-SPAN cameras captured Representative Jeff Duncan, a South Carolina Republican, asking Trump to “release the memo.” Republican lawmakers say the four-page document raises questions about the validity of the investigation into possible collusion between Trump’s campaign and Russia, now led by Special Counsel Robert Mueller. “Oh yeah, don’t worry, 100%,” Trump replied, waving dismissively. “Can you imagine that? You’d be too angry.”

Republicans in the House moved to release the memo, authored by House Intelligence Chairman Devin Nunes, in a party-line vote on Monday. The move has been opposed by Democrats, who argue the memo gives an inaccurate portrayal of appropriate actions undertaken by law enforcement, and by the Justice Department, which has said it should remain classified. Releasing the memo has become a cause for conservative congressional Republicans, who say the FBI and the Justice Department pursued the investigation of possible Russian ties to the Trump presidential campaign under false pretenses. Trump has as many as five days to review the document for national security concerns, and White House officials insisted earlier Tuesday he hadn’t yet seen the document.

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Talk about your American Dream: “..households are living paycheck-to-paycheck even if those paychecks are reasonably large and even if life is comfortable at the moment.”

Saving Rate Drops to 12-Year Low As 50% of Americans Don’t Have Savings (WS)

In terms of dollars, personal saving dropped to a Seasonally Adjusted Annual Rate of $351.6 billion, meaning that at this rate in December, personal savings for the whole year would amount to $351.6 billion. This is down from the range between $600 billion and $860 billion since the end of the Financial Crisis. But who is – or was – piling up these savings? Numerous surveys provide an answer, with variations only around the margins. For example, the Federal Reserve found in its study of US households: Only 48% of adults have enough savings to cover three months of expenses if they lost their income. An additional 22% could get through the three-month period by using a broader set of resources, including borrowing from friends and selling assets. But 30% would not be able to manage a three-month financial disruption. 44% of adults don’t have enough savings to cover a $400 emergency and would have to borrow or sell something to make ends meet.

Folks who had experienced hardship were more likely to resort to “an alternative financial service” such as a tax refund anticipation loan, pawn shop loan, payday loan, auto title loan, or paycheck advance, which are all very expensive. Similarly, Bankrate found that only 39% of Americans said they’d have enough savings to be able to cover a $1,000 emergency expense. They rest would have to borrow, sell, cut back on spending, or not deal with the emergency expense. All these surveys say the same thing: about half of Americans have little or no savings though many have access to some form of credit, including credit cards, pawn shops, payday lenders, or relatives. So what does it mean when the “saving rate” declines?

Many households spend more than they make. For them, the personal saving rate is a negative number. This negative personal saving rate translates into borrowing, which explains the 5.7% year-over-year surge in credit card debt, and the 5.5% surge in overall consumer credit. It boils down to this: most of the positive saving rate, with savings actually increasing, takes place at the top echelon of the economy – at the top 40%, if you will – where households are flush with cash and assets and where the saving rate is very large. But the growth in borrowing for consumption items (the negative saving rate) takes place mostly at the bottom 60%, where households are living paycheck-to-paycheck even if those paychecks are reasonably large and even if life is comfortable at the moment.

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Peculiar: $2.3 billion ‘worth’ of a dollar-pegged ‘currency’, backed by nothing much in proof.

U.S. Regulators Subpoena Crypto Exchange Bitfinex, Tether (BBG)

U.S. regulators are scrutinizing one of the world’s largest cryptocurrency exchanges as questions mount over a digital token linked to its backers. The U.S. Commodity Futures Trading Commission sent subpoenas on Dec. 6 to virtual-currency venue Bitfinex and Tether, a company that issues a widely traded coin and claims it’s pegged to the dollar, according to a person familiar with the matter, who asked not to be identified discussing private information. The firms share the same chief executive officer. Tether’s coins have become a popular substitute for dollars on cryptocurrency exchanges worldwide, with about $2.3 billion of the tokens outstanding as of Tuesday.

While Tether has said all of its coins are backed by U.S. dollars held in reserve, the company has yet to provide conclusive evidence of its holdings to the public or have its accounts audited. Skeptics have questioned whether the money is really there. “We routinely receive legal process from law enforcement agents and regulators conducting investigations,” Bitfinex and Tether said Tuesday in an emailed statement. “It is our policy not to comment on any such requests.” Bitcoin, the biggest cryptocurrency by market value, tumbled 10% on Tuesday. It fell another 3.2% to $9,766.41 as of 9:19 a.m. in Hong Kong, according to composite pricing on Bloomberg. The virtual currency hasn’t closed below $10,000 since November.

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Who’s aiding Spain in keeping its problems hidden? 30,000 complaints in 9 months, and the ECB is silent?!

Customer Lawsuits Pummel Spanish Banks (DQ)

Following a succession of consumer-friendly rulings, bank customers in Spain are increasingly taking their banks to court. And many of them are winning. Last year an unprecedented wave of litigation against banks forced the Ministry of Justice to set up dozens of courts specialized in mortgage matters to prevent the collapse of the rest of the national judicial system. The Bank of Spain, according to its own figures, received 29,957 complaints from financial consumers between January and September 2017 — already double that of the previous year and by far the highest number of complaints registered since 2013, a record year when investors and customers were desperately trying to claw back the money they’d lost in the preferred shares that issuing banks had pushed on their own customers as savings products.

In 2017, eight out of 10 complaints related to one key product: mortgages, and in particular the so-called “floor clauses” contained within them. These floor clauses set a minimum interest rate — typically of between 3% and 4.5% — for variable-rate mortgages, even if the Euribor dropped far below that figure. This, in and of itself, was not illegal. The problem is that most banks failed to properly inform their customers that the mortgage contract included such a clause. Those that did, often told their customers that the clause was an extreme precautionary measure and would almost certainly never be activated. After all, they argued, what are the chances of the Euribor ever dropping below 3.5% for any length of time? At the time (early 2009), Europe’s benchmark rate was hovering around the 5% mark.

Within a year it had crashed below 1% and has been languishing at or below zero ever since. As a result, most Spanish banks were able to enjoy all the benefits of virtually free money while avoiding one of the biggest drawbacks: having to offer customers dirt-cheap interest rates on their variable-rate mortgages. But all that came to a crashing halt in May 2013 when Spain’s Supreme Court ruled that the floor clauses were abusive and that the banks must reimburse all the funds they’d overcharged their mortgage customers — but only from the date of the ruling! Then, on December 21, 2016, the European Court of Justice (ECJ) delivered a further hammer blow when it acknowledged the right of homeowners affected by “floor clauses” to be reimbursed money dating back to when the mortgage contract was first signed. Since the ECJ ruling, law firms are now so confident of winning floor-clause cases that they’re even offering no win, no-fee deals.

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US and UK suffer from the exact same problem.

Britons Ever More Deeply Divided Over Brexit (R.)

The social divide revealed by Britain’s 2016 vote to leave the European Union is not only here to stay but deepening, according to academic research published on Wednesday. Think tank The UK in a Changing Europe said Britons were unlikely to change their minds about leaving the EU, despite the political and economic uncertainty it has brought, because attitudes are becoming more entrenched. “The (Brexit) referendum highlighted fundamental divisions in British society and superimposed a leave-remain distinction over them. This has the potential to profoundly disrupt our politics in the years to come,” said Anand Menon, the think tank’s director.

Britain is negotiating a deal with the EU which will shape future trade relations, breaking with the bloc after four decades, but the process is complicated by the divisions within parties, society and the government itself. Menon said the research, based on a series of polls over the 18-month period since Britain voted to leave the European Union, showed 35% of people self-identify as “Leavers” and 40% as “Remainers”. Research also found that both sides had a tendency to interpret and recall information in a way that confirmed their pre-existing beliefs which also added to the deepening of the impact of the vote. The differences showed fragmentation was more determined by age groups and location than by economic class.

Polls have shown increasing support for a second vote on whether or not to leave the European Union once the terms of departure are known, but such a vote would not necessarily provide a different result, a poll by ICM for the Guardian newspaper indicated last week. The report also showed that age was a better pointer to how Britons voted than employment. Around 73% of 18 to 24-year-olds voted to stay in the EU, but turnout among that group was lower than among older voters. “British Election Study surveys have suggested that, in order to have overturned the result, a startling 97% of under-45s would have had to make it to the ballot box, as opposed to the 65% who actually voted,” the report said.

Read more …

How China hides debt through swaps. As US and EU have done for ages now.

The GDP of Bridges to Nowhere (Michael Pettis)

In most economies, GDP growth is a measure of economic output generated by the performance of the underlying economy. In China, however, Beijing sets annual GDP growth targets it expects to meet. Turning GDP growth into an economic input, rather than an output, radically changes its meaning and interpretation. On January 18, 2018, China’s National Bureau of Statistics announced that the country’s GDP grew by 6.9% in 2017. A day earlier, the People’s Bank of China (PBoC) announced that total social financing (TSF) in 2017 had increased to 19.44 trillion renminbi.

[..] I was recently part of a discussion on a listserv that brings together Chinese and foreign experts to exchange views on China-related topics. What set off this discussion was a claim that the Chinese economy began to take deleveraging seriously in 2017. Everyone agreed that debt in China is still growing far too quickly relative to the country’s debt-servicing capacity, but the pace of credit growth seems to have declined in 2017, even as real GDP growth held steady and, more importantly, nominal GDP growth increased. I was far more skeptical than some others about how to interpret this data. It is not just the quality of data collection that worries me, but, more importantly, the prevalence in China of systemic biases in the way the data is collected. Not all debt is included in TSF figures. The table above, for example, indicates a fall in TSF in 2015, but this did not occur because China’s outstanding credit declined.

[..] in 2015 there was a series of debt transactions (mainly provincial bond swaps aimed at reducing debt-servicing costs and extending maturities) that extinguished debt that had been included in the TSF category and replaced it with debt not included in TSF. The numbers are large. According to the China Daily, there were 3.2 trillion renminbi worth of bond swaps in 2015, plus an additional 600 billion renminbi of new bonds issued. If we adjust TSF by adding these back, rather than indicate a decline of 6.4%, we would have recorded an increase of 15.7%. [..] The point is that the deceleration in credit growth implied by TSF data might indeed reflect the beginning of Chinese deleveraging, but it could also reflect the surge in regulatory concern. In the latter case, this would mean that China has experienced not the beginnings of deleveraging, but rather a continuation of the trans-leveraging observers have seen before.

Read more …

Nov 012017
 
 November 1, 2017  Posted by at 2:44 pm Finance Tagged with: , , , , , , , , ,  


Jean-Léon Gérôme Slave market 1866

 

Here’s the story in a nutshell: Ultra low interest rates mark a shift away from people’s wealth residing in their savings and pension plans, and into to so-called wealth residing in their homes, which are bought with ever growing levels of debt. When interest rates rise, they will lose that so-called wealth.

It is grand theft auto on an unparalleled scale, and it’s a piece of genius, because while people are getting robbed in plain daylight, they actually think they’re winning. But as I wrote back in March of this year, home sales, and bubbles, are the only thing that keeps our economies humming.

We haven’t learned a thing since March, and we haven’t learned a thing for many years. People need a place to live, and they fall for the scheme hook line and sinker. Which in a way is a good thing because the economy would have been dead without that ignorance, but at the same time it’s not because it’s a temporary relief only and the end result will be all the more painful for it.

Whatever Yellen decides as per rates, or Draghi, it doesn’t really matter anymore, this sucker’s going down something awful. This is a global issue. Housing bubbles have been blown not only in the Anglosphere, though they are strong there, many other countries have them as well, Scandinavia, Netherlands, even Germany and France. It’s what ultra low rates do.

First, here’s what I said in March:

 

Our Economies Run On Housing Bubbles

What we have invented to keep big banks afloat for a while longer is ultra low interest rates, NIRP, ZIRP etc. They create the illusion of not only growth, but also of wealth. They make people think a home they couldn’t have dreamt of buying not long ago now fits in their ‘budget’. That is how we get them to sign up for ever bigger mortgages. And those in turn keep our banks from falling over.

Record low interest rates have become the only way that private banks can create new money, and stay alive (because at higher rates hardly anybody can afford a mortgage). It’s of course not just the banks that are kept alive, it’s the entire economy. Without the ZIRP rates, the mortgages they lure people into, and the housing bubbles this creates, the amount of money circulating in our economies would shrink so much and so fast the whole shebang would fall to bits.

That’s right: the survival of our economies today depends one on one on the existence of housing bubbles. No bubble means no money creation means no functioning economy.

 

 

What we should do in the short term is lower private debt levels (drastically, jubilee style), and temporarily raise public debt to encourage economic activity, aim for more and better jobs. But we’re doing the exact opposite: austerity measures are geared towards lowering public debt, while they cut the consumer spending power that makes up 60-70% of our economies. Meanwhile, housing bubbles raise private debt through the -grossly overpriced- roof.

This is today’s general economic dynamic. It’s exclusively controlled by the price of debt. However, as low interest rates make the price of debt look very low, the real price (there always is one, it’s just like thermodynamics) is paid beyond interest rates, beyond the financial markets even, it’s paid on Main Street, in the real economy. Where the quality of jobs, if not the quantity, has fallen dramatically, and people can only survive by descending ever deeper into ever more debt.

 

 

Australia’s housing boom has been a thing of beauty, with New Zealand, especially Wellington and Auckland, following close behind. UBS now says the Oz bubble is over. Prices are still rising quite a bit though.

Fresh New Zealand PM Jacinda Ardern has announced new policies to deter foreign buyers from purchasing more property in the country. She may not like what that does to the country’s economy. Most new Zealanders can no longer afford property in major centers, and forcing prices down this way will expose many present owners to margin calls and foreclosures.

Moreover, because Australian banks own their New Zealand peers, if the Aussie boom is really gone, these banks are going to get hit so hard they’ll take down New Zealand with them. Close your eyes and put your fingers in your ears.

 

Australia’s Housing Boom Is ‘Officially Over’

The housing boom that has seen Australian home prices more than double since the turn of the century is “officially over,” after data showed prices now flatlining, UBS said. National house prices were unchanged in October from September, while annual growth has slowed to 7% from more than 10% as recently as July, CoreLogic data released Wednesday showed. “There is now a persistent and sharp slowdown unfolding,” UBS economists led by George Tharenou said in a report. “This suggests a tightening of financial conditions is unfolding, which we expect to weigh on consumption growth via a fading household-wealth effect.”

An end to Australia’s property boom will be welcome news for first-time buyers, who have struggled to break into the market after surging prices propelled Sydney past London and New York to be the second-most expensive housing market. Less impressed may be property investors, already squeezed by regulatory lending curbs that drove up mortgage rates. The cooling housing market may encourage the Reserve Bank to keep interest rates at a record low. A rate hike would be undesirable as it would put further downward pressure on dwelling prices, said Diana Mousina, senior economist at AMP Capital Investors.

 

 

But perhaps a bigger, and more surprising, story is shaping up in the US. Looks like the American housing bubble is back with a vengeance. It’s always amusing to see claims that this is due to a lack of supply. The real problem is not supply, but artificially fabricated demand. Fabricated by low rates. Though the NAR is not known for its accuracy (it’s a PR firm), this Bloomberg piece is still relevant.

 

Homes Are Getting Snapped Up at the Fastest Pace in 30 Years

Homes are sitting on the market for the shortest time in 30 years, according to an annual report on homebuyers and sellers published today by the National Association of Realtors. The typical home spent just three weeks on the market, according to the report, which focused on about 8,000 homebuyers who purchased their home in the year ending in June. That was down from four weeks in the year ending June 2016 and 11 weeks in 2012, when the U.S. housing market was still reeling from the foreclosure crisis.

It was the shortest time since the NAR report began including data on how long homes spend on the market, in 1987. Buyers are snapping up homes quickly at a time when for-sale listings are in short supply, forcing them to compete. The number of available properties declined in September, according to NAR’s monthly report on existing home sales, marking the 28th consecutive month of year-on-year decline in inventory. In addition to moving fast, buyers also had to pony up to close the deal. 42% of buyers paid at least the listing price, the highest share since the NAR survey started keeping track in 2007.

 

Where the fine bubble plan runs astray is in affordability. Ultra low rates can encourage sales, but that also raises prices, and if and when wages do not keep up there must be a point where you hit a wall. In the US that wall is fast approaching, suggests Tyler Durden:

 

US Homes Have Never Been More Unaffordable

Just under a year ago, US home prices finally surpassed their prior all time highs, one decade after the 2006 bubble… and haven’t looked back since. Which, all else equal, would be great news for America, where the bulk of middle-class wealth is not in the stock market contrary to conventional wisdom, but in its biggest, and most illiquid asset-cum-investment: one’s home. There is just one problem: while house prices are once again hitting new all time highs every month, household incomes have failed to keep up; in fact, as the Political Calculations blog shows, in the past two years there has been a distinct trend in home affordability, or lack thereof.

[..] starting in September 2015, the TTM average median new home sale price in the U.S. has been rising at an average rate of $906 per month. That’s the good news; the bad news is that in terms of affordability, the ratio of the trailing twelve month averages of median new home sale prices to median household income in the U.S. has risen to an all time high of 5.454, which following revisions in the data for new home sale prices, was recorded in July 2017. The initial value for September 2017 is 5.437. In other words, the median new home in the US has never been more unaffordable in terms of current income.

 

 

Never more unaffordable is a bold statement, but it’s probably correct. The graph only goes back as far as 1987, but that should do. Another angle on the same issue, also from Tyler:

Home Prices In All US Cities Grow Faster Than Wages… And Then There’s Seattle

US national home prices are up 6.07% YoY in August – the fastest rate since June 2014. We note this data is for August – before the hurricanes. Seattle (up 13.2%), Las Vegas (up 8.6%), and San Diego (up 7.8%) were the top three cities in terms of year-over-year price appreciation; all cities showed gains of at least 3%. Pushing home prices to a new record high…

“Home-price increases appear to be unstoppable,” David Blitzer, chairman of the S&P index committee, said in a statement. “At the same time, “measures of affordability are beginning to slide, indicating that the pool of buyers is shrinking, and the Fed’s interest-rate hikes are likely to push mortgage rates higher over time, “removing a key factor supporting rising home prices,” he said.

 

 

There’s nothing anyone can do to raise wages, and while Yellen may claim not to understand why wages and inflation refuse to shine, it’s not that hard. Whatever is called a job these days is America didn’t use to be labeled that. We’ve all been conned into redefining what a job is, but the benefits and security and all that have still vanished. So what can people afford? They can’t even afford to rent anymore:

 

Renting In The US Has Never Been More Unaffordable

Over the weekend, when looking at the record high ratio in median new home sale prices to household incomes in the US, we concluded that US homes have never been more unaffordable for the average American. What about renting? Isn’t it intuitive that if buying a house has never been more expensive, then at least renting should be cheap(er). Unfortunately no, because not only is renting not cheap(er) in either absolute or relative terms, but when observed through the prism of the only thing that matters, namely disposable income, renting – just like buying a house – has never been more unaffordable.

 

 

Now remember what I said before: millions upon millions see their savings and pensions melt away before their eyes, while at the same time they are forced to spend ever more on housing costs. And when that scheme hits the wall, the economy will remember it’s alive only because of the housing bubble, and then croak. Leaving both renters and owners without jobs and eventually places to live.

A lovely example of where all this is heading comes from a Statista report on the Netherlands 3 weeks ago. The Dutch have tons of interest-only mortgages, just like the Australians, but you can take this graph as a general model for what many of not most countries that have low interest rates and thus housing bubbles, will face:

 

Heading Towards A Mortgage Crisis In The Netherlands?

Bank it or bust. In October 2017, the Dutch Central Bank (DNB) issued a warning on mortgages in the Netherlands. They claimed that almost 55% of the aggregate Dutch mortgage debt consisted of interest-only and investment-based mortgage loans, which did not involve any contractual repayments during the loan term. As prices in the the European housing, or residential real estate, market increase and mortgage rates decrease due the Asset Purchase Programme (APP) of the ECB, interest-only mortgages became more and more popular.

In addition, the Dutch government encouraged home ownership for many years, offering tax exemptions on Dutch mortgage payments alongside other benefits for homebuyers in the Netherlands. Consequently, the total mortgage debt from households in the Netherlands increased from approximately €548 billion in 2006 to approximately €664 billion in 2016. However, the debts must still be repaid when the interest-only mortgages expire.

The DNB stated there could be a risk that the households in question may not have the means to repay their debts before or when their loans expire, risking a new mortgage crisis. Lenders, they say, must actively alert customers to this risk and help them find a suitable solution. Unfortunately, the value of mortgages in 2017 is forecasted to increase with approximately 3.9% compared to 2016.

 

 

The debt accumulation is insane. Combine that with the wholesale erosion of savings and pensions, and you have an economy with either a lot of foreclosures and homelessness in its future, or a bankrupt banking system. More people should, before purchasing property, be shown graphs like that. But that would kill the bubble scheme, wouldn’t it?

Is there a way out of this mess? Well, there is in theory. Just grow your economy, and your wages etc., by let’s say 6.8% per year for decades on end. Problem with that is it’s possible only in a country like China, and that only because whatever Beijing says the growth rate is, goes. But that doesn’t make it real. Still, it entices Chinese grandmas into buying apartments.

What Beijing doesn’t tell them, or us, is how much debt the grandmas have gone into by now to buy all those new nice and shiny apartments. But since stocks and bonds are still not their thing, it’s all they have. Property in China is all on red. In the US about one quarter of household wealth is in housing, in China it’s three quarters.

 

 

So no, there’s no way out. My best guess is the first country to deal with this in an aggressive manner will be the -relative- winner. All others are goners. The governments and politicians who’ve lured their people into this biggest Ponzi in human history will probably be long gone when the house comes down, and if they know what’s good for them will have moved to some street with no name in a land far away.

 

 

Oct 162017
 
 October 16, 2017  Posted by at 8:55 am Finance Tagged with: , , , , , , , ,  


Marc Riboud Street seen from inside antique dealer’s shop, Beijing 1965

 

US Equities “At Most Offensive Level Of Overvaluation In History” (BI)
Yellen Doubles Down: “Valuations Are At High Levels Historically” (ZH)
Goldman Sachs: 88% Chance We’re Heading Into A Bear Market (BI)
The Mystery Of Weak Wage Growth (BI)
China Factory Prices Jump As Government Reduces Capacity (BBG)
China’s Mortgage Debt Bubble Raises Spectre Of 2007 US Crisis (SCMP)
Interest-only Loans Are A Huge Problem For The Australian Economy (Holden)
Revised Figures Reveal UK Is £490 Billion Poorer Than Previously Thought (FL)
How To Weather Brexit: Focus Less On Trade, More On Investment (Pettifor)
UK Financial Regulator Warns Of Growing Debt Among Young People (BBC)
How to Wipe Out Puerto Rico’s Debt Without Hurting Bondholders (Ellen Brown)
Catalan Leader Fails To Spell Out Independence Stance, Calls For Talks (R.)
Electricity Required For Single Bitcoin Trade Could Power Home For A Month (BI)
New Quantum Atomic Clock May Finally Reveal Nature of Dark Matter (USci)
Ai Weiwei On Art, Exile And Refugee Film ‘Human Flow’ (AFP)

 

 

John Hussman correcting Buffett.

US Equities “At Most Offensive Level Of Overvaluation In History” (BI)

Billionaire investor Warren Buffett made a lot of people feel better about historically stretched stock prices earlier this month. Speaking in an interview with CNBC on October 3, the chairman and CEO of Berkshire Hathaway said, “Valuations make sense with interest rates where they are.” The investment community breathed a sigh of relief. After all, Buffett is arguably the most successful stock investor in world history. An all-clear from him surely gives a green light for adding more equity exposure, right? Wrong, says John Hussman, the president of the Hussman Investment Trust and a former economics professor. In his mind, Buffett only gets half of the equation right. While Hussman acknowledges that low lending rates do, by nature, improve future cash flows, he argues that they must also be accompanied by strong growth — something that he notes the US is not currently enjoying.

To Hussman, the simple idea that “lower interest rates justify higher valuations” is one that gives people false confidence. “It’s an incomplete sentence ,” Hussman wrote in a recent blog post. “Unfortunately, the convenience of investing-by-slogan, rather than carefully thinking about finance and examining evidence, is currently leading investors into what is likely to be one of the worst disasters in the history of the U.S. stock market.” Hussman calculates that stock valuations are stretched 175% above their historic norms, and predicts the S&P 500 will see negative total returns over the next 10 to 12 years. Along the way, the benchmark index will experience an interim loss of more than 60%, he estimates. As touched on above, at the core of Hussman’s bearish argument is a lack of economic growth. He specifically points to slowing expansion in the US labor force, as shown by this chart:

“Put simply, if interest rates are low because growth rates are also low, no valuation premium is ‘justified,'” Hussman wrote. “The long-term rate of return on the security will be low anyway without any valuation premium at all. This observation has enormous implications for current U.S. stock market prospects.” So where does that leave the market at this very moment? In the very near term, Hussman’s neutral, citing the continued speculative impulses of investors. Still, he stresses that traders should be hedging and using other safety nets to protect against potential downside, which he says could materialize quickly. To say he’s less than warm and fuzzy about the stock market is an understatement. And when discussing price levels, he doesn’t exactly pull any punches, saying US equities are now “at the most offensive level of overvaluation in history” — even worse than in 1929 and 2000.

Read more …

People like Yellen focus on one activity: explain away the consequences of their blindly taken actions. They grope in the dark.

Yellen Doubles Down: “Valuations Are At High Levels Historically” (ZH)

On the heels of San Franciso Fed Governor John Williams’ warning that The Fed “doesn’t want there to be excesses in financial markets… ” Janet Yellen has reiterated her concerns that markets are a bit toppy… Market valuations “are at high level in historical terms” when assessed on metrics akin to price-earnings ratios, warned Fed Chair Janet Yellen in response to a question on an IMF panel in Washington, but was careful to add that “overall financial stability risks in the U.S. remain moderate.” “Prospects for U.S. fiscal stimulus have buoyed sentiment but not yet had much impact on spending or investment,” she said. “Broader financial stability risks depend on more than just asset prices and it may also be important just why asset valuations are high. So one factor that clearly comes into play is an environment of low interest rates and central bankers like many market participants have been adjusting our notions of what” interest rates are likely to be in the longer term.

So – to sum up – The Fed doesn’t want excesses… Yellen thinks stock valuations are stretched… but don’t worry coz rates are low (although we are dedicated to raising them) and financial stability (despite record high corporate leverage and record low spreads) is not a problem. Well… The market has almost never been this expensive… As Peter Boockvar warns: “Almost there. S&P 500 price to sales ratio is just 4% from March 2000 peak.”

Additionally, Draghi and Kuroda were also said they saw little evidence of frothiness in markets. Others in Washington were less sanguine… The market “feels as benign in 2017 as it felt in 2006,” said Jes Staley, the chief executive of Barclays Plc, referencing the eve of the crisis. Yellen also added in a subtle jab at Trump that while prospects for U.S. fiscal stimulus have buoyed sentiment but not yet had much impact on spending or investment… “It is a source of uncertainty,” Yellen says of fiscal policy changes, “we’ve taken,” as many households have, “a kind of wait-and-see attitude.” Of course, The Fed head being worried about stock valuations is a nothing-burger for the mainstream. Since Janet Yellen’s first warning in July 2014: “Equity market valuations appear stretched”

Read more …

So there.

Goldman Sachs: 88% Chance We’re Heading Into A Bear Market (BI)

Goldman Sachs has circulated a fascinating but scary research note to clients suggesting that the probability of stocks entering a bear market in the next 24 months currently stands at about 88%, based on the history of previous bear markets. The note is titled “Bear Necessities. Should we worry now?” It is an exhaustive, 87-page dive through macroeconomic data and stock market activity going all the way back to the early 20th Century. It was written in September by London-based Chief Global Equity Strategist Peter Oppenheimer, and European strategists Sharon Bell and Lilia Iehle Peytavin. Most of their data focus on the US S&P 500 index of stocks – the largest and most-followed of the share indices globally. The S&P is currently the second largest and longest bull run in history.

The index is also relatively expensive, the Goldman trio says. The aggregate valuation of the S&P 500 is now in its 88th percentile, as measured since 1976, according to Goldman’s calculations. The median stock is in the 99th percentile. The trio calculated a risk index based on the Shiller price-earnings ratio (the price of S&P 500 stocks divided by the average of 10 years of earnings, adjusted for inflation), the US ISM manufacturing index, unemployment (very low), the bond yield curve, and core inflation. The resultant “GS Bear Market Indicator” is currently flashing at 67%. The indicator typically hits highs right before a bear market in US stocks appears:

Historically, when the indicator is at 67%, there is an 88% chance of stocks falling into a bear market in two years’ time, the Goldman analysts say:

However, the chance of a bear growling into view in the near-term remains low — just 35%. Bear markets are triggered in three different ways, Oppenheimer et al argue: “Cyclical” bear markets are trigged by rising interest rates and recessions; “Event-driven” bears come from negative economic shocks like war or emerging market crises; “Structural” bears come from financial bubbles. Depending on your point of view, all three of those triggers are hovering on the horizon: The Fed and the Bank of England are both signalling interest rates will rise; US President Trump is threatening military action in North Korea; and plenty of people think the low-interest rate environment of the last 10 years has inflated asset bubbles in stocks, real estate and property in Europe, and private equity tech startup valuations.

Read more …

Those for whom this is a mystery are not fit for their jobs. If you export millions of jobs to Asia, take workers’ negotiating powers away and push them into crappy jobs with no benefits, only one outcome is possible.

The Mystery Of Weak Wage Growth (BI)

Many economists say they can’t figure out why US wage growth remains so meager nine years into the economic expansion, especially given a decline in the unemployment rate to a historically low 4.4%. A new study from the IMF might help them out. It finds that shifts in the labor market toward less stable, temporary or contract jobs, including odd hours and often no health insurance, likely play a substantial role in preventing wages from rising. That’s because job uncertainty makes it harder for workers to bargain for higher wages, giving employers a strong upper hand in any salary negotiation. The trend is happening not just in the United States but also in other rich economies, the Fund says. “Labor market developments in advanced economies point to a possible disconnect between unemployment and wages,” IMF staffers write in their latest World Economic Outlook report.

“Subdued nominal wage growth has occurred in a context of a higher rate of involuntary part-time employment, an increased share of temporary employment contracts, and a reduction in hours per worker,” the report adds. That’s not the only factor. The Great Recession of 2007 to 2009, which was a global phenomenon, set labor markets back years, and suppressed wages sharply as unemployment surged, peaking at 10% in the United States. The IMF suggests the policy reaction to that global downturn was underwhelming, particularly when it came to fiscal policies, which were restrictive both in the United States and Europe.

“Whereas in many economies headline unemployment is approaching ratios seen before the Great Recession, or has even dipped below those levels, nominal wage growth rates continue to grow at a distinctly slower pace,” the Fund said. “For some economies, this may reflect policy measures to slow wage growth and improve competitiveness in the aftermath of the global financial crisis and euro area sovereign debt crisis.” [..] “To the extent that declining unemployment rates partly reflect workers forced into part-time jobs, increases in such types of employment may overstate the tightening of the labor market,” the IMF said.

Read more …

It’s all for the Party Congress: close industries so air is cleaner, and let scarcity push producer prices higher. But wait till consumers feel those higher prices. It’s just, that is AFTER the Congress.

China Factory Prices Jump As Government Reduces Capacity (BBG)

China’s factory prices jumped more than estimated, as domestic demand remained resilient and the government continued to reduce excess industrial capacity. Consumer price gains matched projections. • The producer price index rose 6.9% in September from a year earlier. • The manufacturing PPI sub-index climbed 7.3%, the most in nine years • The consumer price index climbed 1.6%, versus a prior reading of 1.8%, the statistics bureau said Monday. Aggressive cuts to capacity in industries like steel and cement, coupled with resilient demand, have contributed to factory inflation that’s lasted longer than economists expected. The drive to cut pollution and boost firms’ efficiency will probably continue as the Communist Party begins its 19th Congress this week.

“The economy has pretty strong momentum now, monetary policy remained loose ahead of the 19th Party Congress, and the environmental cleanup has cut the supply of commodities,” said Shen Jianguang, chief Asia economist at Mizuho in Hong Kong and the lone forecaster in Bloomberg’s survey to correctly predict the PPI reading. “But this is not sustainable. Deleveraging will be moving up on the agenda after the congress.” “Strong PPI shows that economic momentum is pretty robust in the second half,” said Liu Xuezhi, an analyst at Bank of Communications in Shanghai. “It was widely expected that factory-gate inflation could slow in the second half, but apparently it’s still quite resilient, which may lead to a more positive outlook.”

“China’s manufacturing industry, upstream in particular, continues to see decent demand,” said Raymond Yeung, chief Greater China economist at Australia & New Zealand Banking in Hong Kong. “This PPI figure foretells a decent growth number to be out later this week. We see GDP of 6.8% at the moment but should be prepared for an upside risk.”

Read more …

I don’t normally post 3-week-old articles, but this one (h/t Tyler) is just too good. The Chinese never borrowed much, but now they borrow more than anyone. Scary: “..a person without a flat has no future in Shenzhen.” It’ll keep the economy going until it doesn’t.

China’s Mortgage Debt Bubble Raises Spectre Of 2007 US Crisis (SCMP)

Young Chinese like Eli Mai, a sales manager in Guangzhou, and Wendy Wang, an executive in Shenzhen, are borrowing as much money as possible to buy boomtown flats even though they cannot afford the repayments. Behind the dream of property ownership they share with many like-minded friends lies an uninterrupted housing price rally in major Chinese cities that dates back to former premier Zhu Rongji’s privatisation of urban housing in the late 1990s. Rapid urbanisation, combined with unprecedented monetary easing in the past decade, has resulted in runaway property inflation in cities like Shenzhen, where home prices in many projects have doubled or even tripled in the past two years. City residents in their 20s and 30s view property as a one-way bet because they’ve never known prices to drop.

At the same time, property inflation has seen the real purchasing power of their money rapidly diminish. “Almost all my friends born since the 1980s and 1990s are racing to buy homes, while those who already have one are planning to buy a second,” Mai, 33, said. “Very few can be at ease when seeing rents and home prices rise so strongly, and they will continue to rise in a scary way.” The rush of millions young middle-class Chinese like Mai into the property market has created a hysteria that eerily resembles the housing crisis that struck the United States a decade ago. Thanks to the easy credit that has spurred the housing boom, many young Chinese have abandoned the frugal traditions of earlier generations and now lead a lifestyle beyond their financial means.

The build-up of household and other debt in China has also sparked widespread concern about the health of the world’s second largest economy. The Chinese leadership headed by President Xi Jinping has taken a note of the problem and launched an unprecedented campaign in the second half of last year to curb home price rises in major cities by raising down payment requirements, disqualifying some buyers and squeezing the bank credit available for home buyers. The campaign is still deepening, with five more cities introducing rules last weekend that will freeze some property deals.

[..] Government policies are also protecting the interests of homeowners. City governments have squeezed land supply to keep land prices high and made secondary market trading less attractive, with new home buyers left to compete for a few new developments. Meanwhile, there is no property tax, which encourages homeowners to hold on to appreciating property assets. The result has been skyrocketing housing prices in Shenzhen, Beijing and Shanghai, where property prices can match those in Hong Kong or London. The lesson was that “if you don’t buy a flat today, you will never be able to afford it”, Wang, 29, said. [..] “The debts are huge to me,” Wang said. “But a person without a flat has no future in Shenzhen.”

Read more …

Half of one banker’s loan books are interest-only. Most are 40%. That is an insane amount of principal that is not being paid off.

Interest-only Loans Are A Huge Problem For The Australian Economy (Holden)

I’m not normally a fan of parliament hauling private sector executives before them and asking thorny questions. But when the Australian House of Representatives did so this week with the big banks it was both useful and instructive. And, to be perfectly frank, terrifying. Let’s start with Westpac CEO Brian Hartzer. First, he confirmed the little-known but startling fact that half of his A$400 billion home loan book consists of interest-only mortgages. Yep, half. Of A$400 billion. At one bank. Oh, and ANZ, CBA and NAB are all nearly at 40% interest-only. Hartzer went on to make the banal statement: “we don’t lend to people who can’t pay it back. It doesn’t make sense for us to do so.” So did it make sense for all those American mortgage lenders to lend to people on adjustable rates, teaser rates, low-doc loans, no-doc loans etc. before the global financial crisis?

Of course not. The point is that banks are not some benevolent, unitary actor taking care of their own money. There are top managers like Harzter acting on behalf of shareholders. Those top managers delegate authority to lower-level managers, who are given incentives to write lots of mortgages. And, as we know, the incentives of those who make the loans are not necessarily aligned with those of the shareholders. Those folks may well want to make loans to people who can’t pay them back as long as they get a big payday in the short term. ANZ CEO Shayne Elliot repeated Hartzer’s mantra, saying: “It’s not in our interest to lend money to people who can’t afford to repay.” Recall, this is the man who on ABC’s Four Corners said that home loans weren’t risky because they were all uncorrelated risks (the chances that one loan defaults does not affect the chances of others defaulting).

That is a comment that is either staggeringly stupid or completely disingenuous. Messers Harzter and Elliot must take us all for suckers. They have made a huge amount of interest-only loans, at historically low interest rates, to buyers in a frothy housing market, who spend a large chunk of their income on interest payments. This certainly looks troubling. It may not be US sub-prime, but it could be ugly. Very ugly. To put it in context, there appears to be in the neighbourhood of A$1 trillion of interest-only loans on the books of Australian banks. I say “appears to be” because reporting requirements are so lax it’s hard to know for sure, except when CEOs cough up the ball, like this week. The big lesson of the US mortgage meltdown is that the risks on these mortgages are all correlated. If a few people aren’t paying back an interest-only loan, that is a fair predictor that others won’t pay back their loans either.

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From a “gated” Ambrose Evans-Pritchard article. Troubles grow fast.

Revised Figures Reveal UK Is £490 Billion Poorer Than Previously Thought (FL)

“Global banks and international bond strategists have been left stunned by revised ONS figures showing that Britain is £490bn poorer than had been assumed and no longer has any reserve of net foreign assets, depriving the country of its safety margin as Brexit talks reach a crucial juncture. A massive write-down in the UK balance of payments data shows that Britain’s stock of wealth – the net international investment position – has collapsed from a surplus of £469bn to a net deficit of £22bn. This transforms the outlook for sterling and the gilts markets. “Half a trillion pounds has gone missing. This is equivalent to 25pc of GDP,” said Mark Capleton, UK rates strategist at Bank of America. Making matters worse, foreign direct investment (FDI) by companies is plummeting. It fell from a £120bn surplus in the first half 2016 to a £25bn deficit over the same period of this year.”

The news comes on top of the OBR confessing to a miscalculation of their own last week in UK productivity potential. Not good news for the UK or pound so let’s see if it plays out as the session progresses.

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Too late? Won’t happen under Tories.

How To Weather Brexit: Focus Less On Trade, More On Investment (Pettifor)

“Strong and stable” seems of a world so far, far away. Yesterday’s Daily Mail headline “PM slaps treacherous Chancellor down” portrays a government in political chaos. Thanks to open, unresolved intra-Brexiteer warfare, ministers are unable to agree the basics of how to exit the European Union. This state of uncertainty intensifies just as the risks to British jobs and living standards are becoming starker and more potent. Ironically, just as we teeter towards the cliff, ONS data reveals that exports of goods to the EU grew over the last three months, while those to the rest of world fell back, a fact not devoid of dark humour. Yet while ministers appear obsessed by trade, net trade comprises only a small part of UK GDP. Surely, through the coming period of Brexit chaos, government priority must be to “take back control” and maintain and support the domestic economy.

This means a commitment to support not only investment technically defined as “capital” but also public investment in the health, education, and training of the British people. In that way, Britain will have some chance of weathering the storm. George Magnus highlighted the OBR’s acceptance that UK productivity growth is likely to stay much lower than previously assumed. This leads to the inevitable conclusion that—on present course—the ever-weaker economy will lead this government to continue to slash public revenues. Yet even this gloomy OBR data underestimates the dangers. For the OBR has not yet factored in the far greater damage that will flow from a chaotic, unplanned Brexit in less than 18 months.

[..] Investment in the UK has since 2007 been in the 14 – 18% range as a share of GDP. In 2016, the figure was 17%. France, by contrast, has annual investment of between 22 – 24% of GDP, and Germany around 19 – 21%. The UK in 2016 slumped to 116th place out of 141 countries in terms of capital investment as a percentage of GDP. In the EU, only Greece, Portugal, Lithuania and Cyprus were below us. Low levels of investment by the “timid mouse” that is the private sector is directly a function of low levels of aggregate demand. Firms can’t see future customers coming through the door, and are made timid by volatile financial conditions and political uncertainty. Weak demand and financial instability are exacerbated by low levels of public investment.

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More UK misery: “We should not think this is reckless borrowing, this is directed at essential living costs.”

UK Financial Regulator Warns Of Growing Debt Among Young People (BBC)

The chief executive of the Financial Conduct Authority has warned of a “pronounced” build up of debt among young people. In an interview with the BBC, Andrew Bailey said the young were having to borrow for basic living costs. The regulator also said he “did not like” some high cost lending schemes. He said consumers, and institutions that lend to them, should be aware that interest rates may rise in the future and that credit should be “affordable”. Action was being taken to curb long term credit card debt and high cost pay-day loans, Mr Bailey said. The regulator is also looking and charges in the rent-to-own sector which can leave people paying high levels of interest for buying white goods such as washing machines, he added.

“There is a pronounced build up of indebtedness amongst the younger age group,” Mr Bailey said. “We should not think this is reckless borrowing, this is directed at essential living costs. It is not credit in the classic sense, it is [about] the affordability of basic living in many cases.” [..] “There are particular concentrations [of debt] in society, and those concentrations are particularly exposed to some of the forms and practices of high cost debt which we are currently looking at very closely because there are things in there that we don’t like,” Mr Bailey said. “There has been a clear shift in the generational pattern of wealth and income, and that translates into a greater indebtedness at a younger age. “That reflects lower levels of real income, lower levels of asset ownership. There are quite different generational experiences,” he said.

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Haven’t seen anything from Ellen in a while. This makes a ton of sense. But Puerto Rico’s not the only place that needs it.

How to Wipe Out Puerto Rico’s Debt Without Hurting Bondholders (Ellen Brown)

DWiping out Puerto Rico’s debt, they warned, could undermine confidence in the municipal bond market, causing bond interest rates to rise, imposing an additional burden on already-struggling states and municipalities across the country. True, but the president was just pointing out the obvious. As economist Michael Hudson says, “Debts that can’t be paid won’t be paid.” Puerto Rico is bankrupt, its economy destroyed. In fact it is currently in bankruptcy proceedings with its creditors. Which suggests its time for some more out-of-the-box thinking . . . . In July 2016, a solution to this conundrum was suggested by the notorious Goldman Sachs itself, when mom and pop investors holding the bonds of bankrupt Italian banks were in jeopardy. Imposing losses on retail bondholders had proven to be politically toxic, after one man committed suicide.

Some other solution had to be found. Italy’s non-performing loans (NPLs) then stood at 210bn, at a time when the ECB was buying 120bn per year of outstanding Italian government bonds as part of its QE program. The July 2016 Financial Times quoted Goldman’s Francesco Garzarelli, who said, “by the time QE is over – not sooner than end 2017, on our baseline scenario – around a fifth of Italy’s public debt will be sitting on the Bank of Italy’s balance sheet.” His solution: rather than buying Italian government bonds in its quantitative easing program, the ECB could simply buy the insolvent banks’ NPLs. Bringing the entire net stock of bad loans onto the government’s balance sheet, he said, would be equivalent to just nine months’ worth of Italian government bond purchases by the ECB.

Puerto Rico’s debt is only $73 billion, one third the Italian debt. The Fed has stopped its quantitative easing program, but in its last round (called “QE3”), it was buying $85 billion per month in securities. At that rate, it would have to fire up the digital printing presses for only one additional month to rescue the suffering Puerto Ricans without hurting bondholders at all. It could then just leave the bonds on its books, declaring a moratorium at least until Puerto Rico got back on its feet, and better yet, indefinitely. Shifting the debt burden of bankrupt institutions onto the books of the central bank is not a new or radical idea. UK Prof. Richard Werner, who invented the term “quantitative easing” when he was advising the Japanese in the 1990s, says there is ample precedent for it. In 2012, he proposed a similar solution to the European banking crisis, citing three successful historical examples.

One was in Britain in 1914, when the British banking sector collapsed after the government declared war on Germany. This was not a good time for a banking crisis, so the Bank of England simply bought the banks’ NPLs. “There was no credit crunch,” wrote Werner, “and no recession. The problem was solved at zero cost to the tax payer.” For a second example, he cited the Japanese banking crisis of 1945. The banks had totally collapsed, with NPLs that amounted to virtually 100% of their assets: But in 1945 the Bank of Japan had no interest in creating a banking crisis and a credit crunch recession. Instead it wanted to ensure that bank credit would flow again, delivering economic growth. So the Bank of Japan bought the non-performing assets from the banks – not at market value (close to zero), but significantly above market value.

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Set for confrontation. Combine with Brexit and Austria’s push to the right, and you get an EU with crumbling foundations.

Catalan Leader Fails To Spell Out Independence Stance, Calls For Talks (R.)

Catalan leader Carles Puigdemont failed to clarify on Monday whether he had declared Catalonia’s independence from Spain last week, paving the way for the central government to take control of the region and rule it directly. The wealthy region’s threatened to break away following a referendum in Oct. 1 that Spain’s Constitutional Court said was illegal. That plunged the country into its worst political crisis since an attempted military coup in 1981. Puigdemont made a symbolic declaration of independence on Tuesday, but suspended it seconds later and called for negotiations with Madrid on the region’s future. Spain’s Prime Minister Mariano Rajoy gave him until Monday 10:00 a.m. (0800 GMT) to clarify his position, and until Thursday to change his mind if he insisted on a split – and said Madrid would suspend Catalonia’s autonomy if he chose independence.

Rajoy had said Puigdemont should answer the formal requirement with a simple “Yes” or “No” and that any ambiguous response would be considered a confirmation that a declaration of independence had been made. Puigdemont did not directly answer the question in his letter to Rajoy, made public by local Catalan media. The Catalan leader said instead that the two should meet as soon as possible to open a dialogue over the next two months. “Our offer for dialogue is sincere and honest. During the next two months, our main objective is to have this dialogue and that all international, Spanish and Catalan institutions and personalities that have expressed the willingness to open a way for dialogue can explore it,” Puigdemont said in the letter.

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And this will go up as the blockchain grows.

Electricity Required For Single Bitcoin Trade Could Power Home For A Month (BI)

Bitcoin transactions use so much energy that the electricity used for a single trade could power a home for almost a whole month, according to a paper from Dutch bank ING. Bitcoin trades use a lot of electricity as a means to make verifying trades expensive, therefore making fraudulent transactions costly and deterring those who would seek to misuse the currency. “By making sure that verifying transactions is a costly business, the integrity of the network can be preserved as long as benevolent nodes control a majority of computing power,” wrote ING senior economist Teunis Brosens. “Together, they will dominate the verification (mining) process. To make the verification (mining) costly, the verification algorithm requires a lot of processing power and thus electricity.”

Comparing the amount of energy used for a bitcoin transaction to running his home in the Netherlands, Brosens says: “This number needs some context. 200kWh is enough to run over 200 washing cycles. In fact, it’s enough to run my entire home over four weeks, which consumes about 45 kWh per week costing €39 of electricity (at current Dutch consumer prices).” Not only does Bitcoin use a vast amount of electricity to complete transactions, it uses an almost exponentially larger amount than more traditional forms of electronic payment. “Bitcoin’s energy costs stand in stark contrast to payment systems that have the luxury of working with trusted counterparties. E.g. Visa takes about 0.01kWh (10Wh) per transaction which is 20000 times less energy,” Brosens notes, pointing to the chart below:

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3-dimensional quantum clocks. Much of our electronic infrastructure already relies on atomic clocks.

New Quantum Atomic Clock May Finally Reveal Nature of Dark Matter (USci)

Physicists have created a quantum atomic clock that uses a new design to achieve unprecedented levels of accuracy and stability. Its broad range of potential applications could even stretch to research into dark matter. Scientists at the University of Colorado Boulder’s JILA (formerly the Joint Institute for Laboratory Astrophysics) have developed an incredibly precise quantum atomic clock based on a new three-dimensional design. The project has set a new record for quality factor, a metric used to gauge the precision of measurements. The clock packs atoms of strontium into a cube, achieving 1,000 times the density of prior one-dimensional clocks. The design marks the first time that scientists have been able to successfully utilize a so-called “quantum gas” for this purpose.

Previously, each atom in an atomic clock was treated as a separate particle, and so interactions between atoms could cause inaccuracies in the measurements taken. The “quantum many-body system” used in this project instead organizes atoms in a pattern, which forces them to avoid one another, no matter how many are introduced to the apparatus. A state of matter known as a degenerate Fermi gas — which refers to a gas comprised of Fermi particles — allows for all of the atoms to be quantized. [..] It’s been suggested that monitoring minor inconsistencies in the ticking of an atomic clock might offer insight into the presence of pockets of dark matter. Previous research has shown that a network of atomic clocks, or even a single highly-sensitive system, might register a change in the frequency of vibrating atoms or laser light in the clock if it passed through a dark matter field.

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Ai himself grew up in miserable conditions due to Mao.

Ai Weiwei On Art, Exile And Refugee Film ‘Human Flow’ (AFP)

In the most tender moments of “Human Flow,” Ai Weiwei’s epic documentary on the worldwide migrant crisis, he is seen hugging, cooking with and cutting the hair of refugees. An ordinary filmmaker might be accused of getting too close to his subject but, as far as the Chinese dissident and internationally renowned artist is concerned, he is the subject. “When I look at people being pushed away from their home because of war, because of all kinds of problems, because of environmental problems, famine, I don’t just have sympathy for them,” he tells AFP. “I do feel that they are part of me and I am part of them, even with very different social status.”

[..] “Human Flow,” his powerful expression of solidarity with refugees around the world, demonstrates the staggering scale of the refugee crisis and its profoundly personal human impact. Captured over a year in 23 countries, it follows a chain of human stories that stretches from Bangladesh and Afghanistan to Europe, Kenya and the US-Mexico border. Ai travels from teeming refugee camps to barbed-wire borders, witnessing refugees’ desperation and disillusionment as well as hope and courage. “I’m so far away from their culture, their religion or whatever the background. But with a human being, you look at him, you know what kind of person he is,” says Ai.

“I have this natural understanding about human beings. So I try to grab them with this kind of approach, a very intimate approach. They can touch me, cut my hair. I can cut their hair. I can cook in their camp.” “Human Flow” is far from Ai’s first work on the refugee crisis. Just last week he scattered over 300 outdoor works across New York as part of a new illustration of his empathy for refugees worldwide. Ai dismisses a common criticism that his work has little artistic merit and that he is more of a campaigner, telling AFP “a good artist should be an activist and a good activist should have the quality of an artist.”

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